Hammer Misses the Mark
In today’s Washington Post, Charles Krauthammer calls into question the integrity of the Social Security trust fund and the integrity of statements I have made recently about the program. Let’s examine his charges.
First, Krauthammer says that I am making a “preposterous claim that Social Security is solvent for 26 years.” This is not a “claim.” This is the projection of the independent Social Security Trustees, who report that even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund surplus will continue grow until 2025, and will have adequate resources make full and timely benefit payments through 2037.
Second, Krauthammer argues that the White House believes that there is “no need to fix it because there is no problem [italics his].” But in the State of the Union, the President explained that “To put us on solid ground,” the President said, “we should also find a bipartisan solution to strengthen Social Security for future generations.” And in my recent USA Today op-ed that Krauthammer cites in his column, I stated: “Strengthening Social Security is an important, but parallel, issue that needs to be addressed as quickly as possible [italics mine].”
Third, Krauthammer’s explanation of the Social Security trust fund and its interaction with the rest of the budget is off base.
Social Security benefits are self-financing, paid for with payroll taxes collected from workers and their employers throughout their careers. To prepare for the retirement of the Baby Boom and to keep Social Security solvent, I was part of the bipartisan effort in 1983 that built up trust fund balances to pay benefits owed to current and future beneficiaries.
Krauthammer is correct when he writes that there is no “lockbox” that keeps the money sent in by workers for until they retire. By design, when more taxes are collected than are needed to pay benefits, funds are invested in Treasury bonds and are held in reserve for when revenue collected is not enough to pay the benefits due. Yet these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are, making them anything but ”worthless IOUs” as Krauthammer suggests. The government has just as much obligation to pay back the bonds in the Social Security trust fund as we do to any other bondholders.
Responsibly honoring that obligation – one that we planned for and always knew was there –entails undertaking fiscal policies that would make it easier, not harder, to meet these obligations. When I last was OMB Director at the end of the Clinton Administration, the Congressional Budget Office estimated $5.6 trillion in budget surpluses over the next decade because of fiscally responsible measures that Democrats and Republicans, working together, had taken.
We are now in a very different fiscal position. When I returned to government at the start of the Obama Administration, the country faced projected deficits of more than $8 trillion over the next decade. These deficits primarily were the result of specific decisions made by the previous Administration and Congress to spend money on initiatives without finding a way to pay for them, notably the tax cuts of 2001 and 2003 and the Medicare prescription drug benefit.
This is the most important point: the problem is not with Social Security, but in the near term the mismatch between what we take in and what we spend in the rest of the budget. Working people had payroll taxes taken from their salaries to pay for future benefits, and instead the money was used to pay for tax cuts and other initiatives. It is hardly fair now to say that those working people caused the problem just when they are ready to collect benefits.
Krauthammer’s argument is inside out. We should not blame Social Security for our current fiscal problems when it is the irresponsible fiscal behavior of the past that has presented the country with future challenges to fund our commitments, including Social Security over the next two decades.
That is why in the short term, we have to honor the legal and moral obligation to keep the promises made to Social Security to repay those surpluses. Doing that entails getting our fiscal house in order. That is why the 2012 budget the President proposed includes more than $1 trillion in deficit reduction over the next decade and makes tough choices that will put the country on a sustainable fiscal path by the middle of the decade.
Looking to the long term past 2037, we have a pressing need to replenish the trust funds and make sure Social Security is on sound footing for generations of workers. The sooner we act the better as it is always easier to give people many years to adapt to any changes in the program (as we saw with the reforms made in 1983 that are still being implemented today). That is why I have repeatedly called for quick action, and have spent most of the last 30 years helping to make the tough decisions to do so.
Jack Lew is the Director of the Office of Management and Budget