Last night I'm having dinner in a restaurant listening to this young guy at a table across the way loudly going on and on about how the tax cut deal, passed yesterday by Congress, constitutes a plot to destroy Social Security. "What were they thinking?" he kept asking, as he explained to his table companion how the 2% temporary reduction in payroll taxes was going to tear a big hole in the Social Security trust fund, and how once that reduction was in place, they would never be able to raise it back up to a sustainable level. Therefore the most worrisome feature of this tax deal is that it is going to destroy Social Security.
First I'm thinking, does he actually think the Democratic leadership has joined in a nefarious plot with the Republicans to destroy the Social Security program? That doesn't seem very likely, if you think about it for even a minute, since Democrats understand that Social Security is one of their crowning achievements, and a linchpin of their support. They would never purposefully destroy one of the foundations of their own party. So maybe this guy just thinks that the Democrats are stupid. Well, maybe some of them are stupid, but that cannot be said of the Democratic leadership, or of the President, a man even John Boehner has admitted is "brilliant."
But since the kind of thinking I heard last night--the kind of thinking which starts from rightful concern about protecting vital programs like Social Security, but sometimes verges into paranoia--seems quite prevalent on the left, let me point out a few facts, in addition to the facts that there is no evidence that the Democratic leadership is either stupid or actively conspiring to destroy the party's support. It should first of all be remembered that Social Security is in no immediate danger. The trust fund can easily afford to reduce its payroll tax intake for a year without endangering its solvency. Second of all, the payroll tax reduction is fully paid for from the general fund of the federal government. What that means is that the federal government is borrowing the billions to pay the Social Security trust fund the expected shortfall from the payroll tax reduction.
OK, but what about next year? Won't it be hard to increase payroll taxes back up to the level needed to assure Social Security's future? I don't think so, for several reasons. I don't think Republicans, for one thing, care about reducing payroll taxes as much as they care about reducing high bracket income taxes or capital gains taxes or estate taxes. Those are the taxes their prime constituents care about the most. Payroll taxes are a cost of doing business, true, but everyone recognizes their necessity, and paying them doesn't create any competitive disadvantages for businesses. Therefore, many Republicans will support any necessary payroll tax increase. (The increase is automatic, anyway, unless they vote to continue the tax holiday.) Not only that, but continuing this temporary deal on a payroll tax holiday would require that the federal government keep borrowing the money needed to pay back the Social Security trust fund, which makes it obvious that the deal just adds to the deficit. That makes continuation of this deal different from continuing the 35% upper bracket tax rate, which for some reason Republicans refuse to believe adds to the deficit. Democrats will also go along with allowing payroll tax rates to go back up because their constituents heartily support Social Security, and also recognize the necessity of paying for it. And everyone hopes that the economy will be better next year, so that we will not mind seeing payroll taxes eat up a bit more of our take home pay.
But the biggest factor that will assure Social Security's future into the long term, it seems to me, is a demographic one. Baby Boomers are just starting to retire. We Baby Boomers are the largest demographic cohort in America. And we vote. As we age, we will vote in increasing numbers. And as we retire, we will vociferously support increased payroll taxes, which retirees do not have to pay, but which are necessary to fund our own retirement. Any politician, Democrat or Republican, who threatens the foundation of the Baby Boomers' retirement payments will not find it very easy to get elected.
So I am not terribly worried about the future of Social Security. It will require some tinkering in a few years to keep it solvent, but the very fact that it can absorb a substantial reduction in funding for the next year proves its strength. Its long term future will be assured by the voting power of an increasingly aging population.