March 25, 2005

Open the Lockboxes

The most interesting number in the Social Security and Medicare Trustees' Report, claims the WSJ Ed Page, is 2.2 Trillion. That's the surplus amount that will be generated before the ponzi sch--I mean trust account-- starts paying more than it receives.

And what will happen to that surplus cash during these next 10 years? Every dime of it will be spent by politicians on current government. Not a nickel will be saved; nothing will be invested in accounts with anyone's name on it. Instead of building assets, or contributing to an increase in net national saving and thus investment, all of it will finance current government consumption.

The reform debate so far has too often detoured into the cul-de-sac of "transition costs" and IOUs and what's going to happen in 2041 when the Trust Fund itself is empty -- or is it really 2042? Who cares? The far more urgent issue is how to capture today's surplus payroll tax revenue and put it to more productive use. If Social Security reform means anything, it ought to mean recapturing some or all of that money.

Yet politicians on both sides of the debate rarely talk about this. That's probably because over the years both Republicans and Democrats have been complicit in spending this Social Security surplus on their own pet causes. We can understand why Democrats would want to continue this ruse even today, since most of them want to pretend there's an account in a bank somewhere that taxpayers own.

But what's up with Republicans? Some of them may fear that if this secret gets out to enough voters, they'll have to stop using that excess revenue to make the budget deficit look smaller than it is. But if they believe in smaller government, they should consider this $2.2 trillion revelation to be truth-in-advertising that shows just how spendthrift Washington is.

Letting individuals keep and invest this excess payroll tax money, which they've earned, is the nub of the entire Social Security debate. And we suspect it's the only argument that reformers have that will trump the scare tactics and accounting obfuscation of opponents.

I think that the U.S. Capital markets could find more productive uses for that money than our good representatives in Congress. But maybe that's just me...

Politics Posted by John Kranz at March 25, 2005 2:00 PM