Committee for a Responsible Federal Budget

Social Security: One Program, Two Viewpoints

Aug 9, 2010 | Social Security

This week, The Bottom Line will be celebrating Social Security’s upcoming 75th birthday on August 14th, and our main present is a comprehensive look at its future. Today, we will be examining the two ways that Social Security can be thought of in respect to America’s budgetary future, and how each of those viewpoints affect the possibility for, and probable methods of, reform.

In one view, Social Security can be thought of as a publicly-run but self-contained pension system. It has its own revenue source, its own trust fund, and is even technically "off-budget".  On the other hand, Social Security can be thought of as a government transfer program, no different from other spending programs in the budget.

Neither view is wrong, and under both views reform is necessary -- but the overall implications of these views are somewhat different. Under the first view, the Social Security program is on solid ground through 2037, since it can continue to draw from its trust fund over the next three decades. 

While not wrong, this view largely ignores the effect of Social Security on the overall fiscal picture. Over the next two decades, unfortunately, Social Security's costs will grow by about one percent of GDP – and its revenues will not follow in suit. As such, it will add significantly to overall debt held by the public – even as its trust fund continues to maintain a positive balance.

CRFB President Maya MacGuineas addressed this issue in a recent CNN article, explaining that:

When Social Security runs a surplus, the extra money is used to purchase U.S. Treasurys, and the dollars are used to help finance the rest of the government, which is almost always running a deficit. So when those assets to Social Security -- and liabilities to taxpayers -- come due, we have to find a way to raise the money, which has already been spent. You know what that means: Raising taxes, cutting spending or borrowing. And because the downturn has drained Social Security surpluses more quickly than expected, that strain on the rest of the budget will begin even sooner.

Stay tuned to The Bottom Line the rest of this week for our series on Social Security. Tomorrow we will discuss reform proposals, while Wednesday we will discuss how other countries enact Social Security-like systems. Thursday will see a blog on the economic consequences of demographic shifts, and Friday will wrap it all up.