There are many reasons why President Bush failed last year to win support for his Social Security overhaul, but here's one of them: Far from being drenched in red ink, the Social Security trust fund is still showing huge year-to-year surpluses. And these surpluses are still continuing to grow! This year Social Security is expected to take in about $80 billion more in cash than it spends on benefits, and by 2009 the surplus probably will top $100 billion. CBO Budget Outlook (Note chart on p. 22)
These growing surpluses don't negate Bush's central point -- that the trust fund will drop like a rock with the Baby Boomers' retirement and that something needs to be done. (Within a decade or so these year-to-year surpluses are projected to become year-to-year deficits.) But it's tough to declare a national emergency at a time when the money is pouring in -- and, by the way, being steered to other pieces of Bush's fast-growing federal budget. For every crisis there is a season, and this one's time clearly hasn't arrived.
What is the truth behind a "grand bargain" during the Reagan Administration? Was the goal to prepare for this upcoming social security deficit with a combination of higher social security taxes in the short run (1980s through now) and higher income taxes later? Or is that an urban myth?
I'm not sure it's possible to assign a consensus view to the strategy behind the 1983 deal that rescued Social Security from a tough financial spot. It is true, however, that payroll taxes were raised high enough to produce a couple of decades worth of surpluses. It's also true that the net effect was for these surpluses to subsidize other operations of government, a plus for high-income earners and a negative for lower wage-earners. Time will tell (and perhaps not for many years) who will pay for the Baby Boomers' higher retirement costs.
I agree that this is the time to address the future SS deficit. But there's no reason for a drastic overhauling. Simply raising the ceiling on taxable SS income by a moderate amount would accomplish what is needed, and at far less cost than Bush's plan would have done.