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The Therapy Sessions
Friday, June 25, 2004

Continuing denial

Just keep telling yourself: Social Security is fine.... Scoial Security is fine: More Bad News for Social Security:
Denial, as the saying goes, is not just a river in Egypt.

Last week, the Congressional Budget Office released a report suggesting that there will be a slightly lower actuarial deficit and a later insolvency date than had been previously estimated by the Social Security Administration (search) itself.

Opponents of Social Security reform immediately seized on the reported improvement in Social Security's finances to argue against taking action to fix the program. Rep. Robert Matsui, D-Calif., said the report proves "radical reforms are unnecessary." Barbara Kennelly of the National Committee to Preserve Social Security (search) said, "It would be absurd for policy-makers to drastically alter the program based on those numbers."

But one wonders if these critics of reform actually bothered to read the report. If they had, they would have seen that CBO's analysis is simply more bad news for the nation's troubled retirement program.

Among the report's findings:

The report, which uses more optimistic technical assumptions than the Social Security Administration, indeed shows a tiny improvement in Social Security's fiscal outlook, albeit at the price of lower benefits. For example, under CBO's assumptions, Social Security will begin running a deficit by 2019, one year later than estimated by SSA. That hardly seems like something worth celebrating.

The CBO estimates that the Social Security Trust Fund will be exhausted by 2052, 10 years later than the SSA projects. This is largely the result of assuming an increase in the interest rate attributed to the bonds in the trust fund. However, the report notes, "those Trust Funds are mainly accounting mechanisms and contain no economic resources."

In other words, the Trust Fund doesn't actually do anything to help pay Social Security benefits. We could set the interest on the Trust Fund bonds to 100 percent, make the system technically solvent for years, but do nothing in reality to increase funding for the program.

Simply, even using CBO's more optimistic technical assumptions, Social Security remains unsustainable: unable to pay promised future benefits given current levels of tax revenue. The report concludes that "unless taxation reaches levels that are unprecedented in the United States, current spending policies are likely to result in an ever growing burden of federal debt.

It's funny how people who get irate about the idea of businesses auditing themselves are all too eager to trust a government that audits itself. There is just this naive trust in the benign goodness of government that I just can't understand.

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