Don't blame the working American

By Bryan Jones, UW professor of political science

The Congressional Budget Office has just released its estimate of the Fiscal 2008 federal budget deficit—about $220 billion dollars. In August, the CBO estimated $155 billion, but the slowing economy has altered the equation. The Office of Management and Budget, based on slightly different assumptions, estimates a budget deficit of around $250 billion. Neither agency includes the cost of the wars in Iraq and Afghanistan (almost $120 billion), nor the cost of the proposed stimulus package (estimated currently to be around $150 billion). This would yield an estimated budget deficit of around $500 billion.

These deficits add up to the national debt, what we as a nation owe. Along with explicit liabilities, such as military retirements, the government owed $10.4 billion in 2006, up 52% since Bush took office.

But wait! There’s more.

Comptroller General David Walker reports that the government’s fiscal balance sheet is in dire straits. In 2000, the government’s accumulated obligations were about $20 trillion; by 2006, that has ballooned to over $50 trillion—an increase of 150%. Much of this is due to the drug benefit that was added to Medicare; the rest is due to cost escalations in Medicare. Walker is so concerned that he has gone on tour to publicize the problem. A summary of Walker’s Fiscal Wake Up Tour may be found at: http://www.gao.gov/cghome/d08353cg.pdf .

There are two components to the balance sheet. The first is the national debt --what we have borrowed and owe to specific individuals, organizations, or governments. The second consists of promises the government has made for future commitments, particularly Social Security and Medicare.

So Social Security is one major component of the dismal federal balance sheet, but the Medicare (including the new drug benefit provision, Part D) accrued obligations are more than five times the obligations under Social Security.

In 1983, the federal government made a bargain with working Americans—those who pay payroll taxes and rely on Social Security for their retirements. At the time, the Social Security system was bankrupt, not able to make payments in literally a few months. President Reagan and Congress in effect told working Americans that if they would pay higher taxes and tolerate delayed benefits, we will make Social Security solvent forever. They actually came close; the system is solvent until 2041.

The bargain worked like this: Workers would pay enough in taxes to allow the Social Security Administration to pay retirees and save a lot of money--basically by buying US savings bonds--for the future, especially when the huge Baby Boom generation retired. When they did, the Social Security Administration would sell its bonds, and continue to pay its obligations. That will happen in 2017, according to the Report of the Social Security Board of Trustees. [I have reproduced the two key charts from this report below. You can read the full report at: http://www.socialsecurity.gov/OACT/TRSUM/trsummary.html].

If George W. Bush had run a responsible fiscal policy, this would be a non-event. Balanced budgets, continuing the fiscal policy established by Bill Clinton, would have provided the cushion when the Social Security Administration needed its money. Instead, he worked to undermine the bargain Government made with working Americans, basically blaming them for his fiscal irresponsibility.

President Bush preferred fiscal deception, claiming in 2005 that the Social Security System was somehow broken and would not be able to pay its obligations to future generations. Indeed, as Walt Williams and I have shown in our new book, The Politics of Bad Ideas, Republican economic policies in general have been built on a set of claims that, like the Social Security bankruptcy claim, are false. The Social Security claim is part of a pattern of deception on economic policies.

What has happened is that Bush borrowed the Social Security surpluses and spent it, mostly through his massive tax cuts. Then he blamed working Americans for simply acting responsibly… basically for contributing to their retirements through Social Security and planning to use it when they retire. Because of his irresponsibility, 2017 looms as a critical date.

What can we say about the Federal balance sheet? First, the Social Security system is sound. It has set aside enough money to pay retirees through 2041. It would be better if we made some modest adjustments to make the system solvent forever, but we have plenty of time for this.

Second, the debt the U.S. government owes the Social Security system is sound, unlike what some conservatives claim. The Social Security Administration simply holds U.S. government Bonds, as does the Chinese government, the Federal Reserve, your pension plan, and many British, Japanese, and American citizens. Why would the government pay the Chinese but not its own elderly? A debt is a debt.

Third, the Medicare system is not sound. It is in deep fiscal trouble. Two major reasons are the Bush prescription drug benefit and the Bush tax cuts.

Fourth, the federal government under Bush is out of control. It has shown an inability to control its balance sheet. It has promised grand new Medicare benefits, fought an incredibly expensive war, and passed out huge tax cuts, mostly to the well-off.

Blaming working Americans relying on Social Security was not only wrong factually, it was class warfare—with the working American as the target.

Social Security Trust Fund Balances