Stop the Raid and Restart Social Security Reform

March 4, 2007 11:38PM

By Phil Kerpen After a few brief trips to the bargaining table, Social Security reform talks between the White House and the Senate have apparently collapsed. While this may mean a halt to the imprudent effort to raise Social Security taxes, Social Security and other entitlement spending is still projected to nearly double the size of federal spending as a percentage of the Gross Domestic Product by 2050. Social Security spending must be bridled and the first place to start is to end Congress’s unconscionable raid of Social Security surpluses. Under the current system, surpluses, which in theory should fund benefits for future retirees, are raided by Congress and squandered on unrelated programs. The late Democratic senator from New York, Daniel Patrick Moynihan, called this “outright thievery.” Here’s how the raid works: Your payroll tax dollars go into the Social Security Trust Fund, which buys special issue bonds from the United States Treasury. Congress can then use those dollars for anything they wish. Social Security is left with the bonds, which accrue interest, but Congress raids the interest, too. They simply place more bonds in the trust fund to cover the interest. The trust fund itself is a filing cabinet in West Virginia—it doesn’t have any real money in it. President George W. Bush explained this in a speech in 2005: “You pay your payroll tax, we pay out to current retirees and then we spend your money on other government programs.” In 2006, this thievery reached a milestone, passing the staggering $1 trillion mark, not including interest. That enormous amount of money has allowed both Republicans and Democrats in Congress to fund unrelated—often wasteful—programs while concealing the size of the deficit. Social Security is expected to remain in cash flow surplus for the next decade, and the raid is scheduled to continue. Under present law, Congress can raid Social Security funds to the tune of $693 billion over the next 10 years. Worse, if a tax-increase deal comes together, it only increases the pool of money available for raiding and does nothing to make Social Security a better deal for America’s workers. Lawmakers in Washington must be willing to take their hands out of the cookie jar and pass legislation to prohibit the spending of Social Security surpluses. Forming a bipartisan commission to consider the best use of those funds would be a great place to start. Such a commission should be willing to consider additional measures including funding individual accounts through surpluses or allowing centralized investment of surplus money in stocks or corporate bonds as President Bill Clinton suggested. Fifty years ago, there were 16 workers for every retiree. Now there are three, and soon there will be only two. If Social Security continues to be a transfer payment, it will place an incredible strain on workers and derail economic growth. Social Security simply cannot continue in its present form without damaging American workers and the economy. Structural reform is needed, and the first step toward broader reforms is to stop the raid.