Friday, February 11, 2005

Question/Ignorance [UPDATED...NOT SO IGNORANT]

[UPDATE--After watching Sunday's Meet the Press, I thought my basic understanding of social security, its problems and potential solutions, was blown all to hell by Ted Kennedy. The post below was a question about it to try and pick up the pieces. But while I was at it, I decided to send a short version of the question to the economic expert I've been reading on social security, Kevin Drum, who writes the fabulous Washington Monthly blog. I thought maybe others of his readers may have the same very basic question. But what do you know, instead of having to wait for him to decide to write on that, he just wrote me back about 10 minutes later with a helpful reply. I wonder if Peter Jennings does stuff like that? Anyway, later in the day, I'll post his reply. Luckily it confirms my understanding, rather than making me start over.]

I have tried to educate myself about social security, to fully understand the arguments. I am no economist. I last actively balanced my checking account in 1989. But I consider myself a quick study. Still, many details escape me. And right now, it comes down to one basic question, which may itself reveal reams of misunderstanding, but I could use the help here. Google hasn't done the trick.

My understanding of how the government can be in debt, but the social security trust fund is in surplus, is that they get their funds from different places. Social security benefits are funded by payroll taxes--paid by employers and employees. And the general fund is filled by federal income taxes. Because the general fund has run such astonishing deficits, the social security fund is usually raided to help fund programs and forestall some of the borrowing from elsewhere. But the trust fund (essentially represented by the retirees of tomorrow) is assured the money (Subject to Bush's deciding not to honor the trust...).

My question is about a possible solution to the minor problem we face, on down the road. I heard it most recently from Senator Kennedy on Meet the Press: roll back 1/3 of the President's tax cuts for the wealthy and social security will be solvent for many more years beyond present estimates.

But if social security benefits are paid with payroll taxes, how will rolling back income tax cuts have any effect? Is it just that the improved budget situation will increase employment and in so doing raise payroll tax revenue? I get the feeling Kennedy and others making this argument mean there is a more direct benefit. Maybe he just means we would have to borrow less (or hopefully not at all) from the social security fund for general programs if we had more income tax revenue? But if we're counting on all the bonds that make up the fund being good anyway, why would that help? I know that rolling back the tax cuts would be good for the economy generally, so I know it will have wide-ranging benefits. But it's hard to see how it would directly impact the Social Security situation.

I'm not dissing Ted. I love him. I just don't get it, and I want to. Who gets it and will help me out?

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