President Bush’s legacy may be defined by Iraq and the war on terror, but his presidency may also be remembered for failure to act on the looming insolvency of major entitlement programs. In the waning days of the Bush administration, Treasury Secretary Paulson is trying to set the stage for action–presumably under the next president–through a series of papers designed to promote understanding of the problem. The first such paper was released yesterday, with this statement from Paulson:
The first paper is a good primer on the history of Social Security, and it makes clear that the program’s fiscal imbalance becomes a real problem far earlier than is generally realized:
Put plainly, Social Security will soon cease to be a federal ‘cash cow.’ Pundits have complained that the true size of the federal deficit is not generally recognized because Social Security revenues effectively pay a portion of general government spending. In 2017–more or less–that will no longer be the case. Rather, income taxes and other general government revenues must be used to pay down a portion of the Social Security Trust Fund surplus–in order to cover the cost of Social Security benefits. According to this report, that transfer will climb to about $300 billion annually by 2025.
That will likely represent a big problem–in terms of both policy and politics. Congress will need to raise taxes or reduce other spending–or add up to $300 billion annually to the deficit–just to pay Social Security benefits. How will Congress fund other priorities? How will taxpayers react when middle-income earners see their income taxes used to pay benefits for Social Security recipients who–under current policy–are not subject to means testing? Most debates about entitlement reform seem to operate under the assumption that the program does not become a ‘real problem’ for decades. But this paper makes clear that this is not the case. While politicians in Washington have clearly tried to avoid the political pain of making changes to the program, we have only a handful of years left before difficult choices are forced on them–one way or the other.
