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Social Security

The Social Security Clock

Monday, March 9, 1998; Page A18

The Social Security problem continues to seem a long way off. The official projection is that, under current tax and benefit policies and "intermediate" economic assumptions, the baby boomers won't exhaust the trust fund until about the year 2039. But that creates a misleading impression; exhaustion of the trust fund is the wrong focal point. In fact if the law isn't changed, the pinch will be felt much sooner – in only about eight years.

Social Security currently functions as a kind of pillow under the rest of the budget, generating extra funds that can be used – and are used – to finance other programs, thereby taking pressure off the income tax. Beginning about the year 2006, the pillow will start to flatten out, and somewhere around the year 2012, as Social Security costs continue to rise, it will disappear. To replace it, the government will need either to raise taxes, cut Social Security or other costs, or borrow. That's when the problem will hit, not in 2039 – and that's why the president is right when he says any budget surplus now should somehow to be retained to strengthen Social Security rather than dissipated in tax cuts.

The state of the trust fund is a misleading measure because the trust fund is an accounting device only. Social Security is a pay-as-you-go system. The government simply transfers money each year from workers to retirees – in effect, the workers' own parents and grandparents. The assets in the trust fund are the taxes that come in each year plus IOU's from the Treasury for years, like the present ones, in which a Social Security surplus is "borrowed" to help finance the rest of government. The trust fund won't be exhausted for a long time because it has those IOU's to fall back on, plus the accumulated interest. But the government will be stressed much earlier, because the IOU's are debts that, on paper, one part of the government owes another. They beg and to some extent mask the question of where the money will come from to pay them.

There are only three possible answers to that. They are the usual answers, all too familiar: tax increases, spending cuts or borrowing – real borrowing – from the public. The Social Security problem is around the corner, not over the horizon. The trust fund is a distraction. We start to feel the effects of the boomers' impending retirement not when the apocalypse hits, but when the surplus begins to recede. The public needs to understand that.

© Copyright 1998 The Washington Post Company

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