Social Security and the Deficit

Sometimes political cleverness comes back and bites you on your ass. Of course, sometimes by the time it does that you have retired or been term limited out of office and it bites someone else on the ass, which may have been the plan all along. Whatever.

I’m actually not entirely sure when Social Security got lumped into the federal budget reporting, but when I first was becoming aware of governance it was not. The federal deficit was reported honestly, with the surplus of the Social Security revenue stream reported separately. Somewhere along the line it became common practice to lump them together so that the surplus in the SS revenue stream disguised the deficit in the federal operating budget, which made Congress and the president look better.

In fact, by the time Clinton was in office he was credited not only with “balancing the budget” but with “creating significant surplus” in the federal budget; so much so that when George W. took office he “had to” cut taxes because of the “dangerous surpluses” we were creating. Actually, the federal debt increased every year that Clinton was in office, except 2000 when it decreased by 2% before increasing again in 2001.

Combining the two revenue streams is seriously dishonest reporting, because the SS revenue is not actually income for the federal government; it is a trust fund, and that money is useable for one thing and one thing only, which is to pay benefits to people who are eligible members of the program and are paying into the trust fund.

The chicanery worked out very well for Congress and the White House, though, always making the deficit look smaller than it actually was, until the economy crashed in 2008. At that point the deficit went berserk and the bogus reporting made the change more dramatic than it would otherwise have been. The real deficit was increased by the reduction in income tax collections due to unemployment, but the apparent deficit was doubled due to the reduction in the SS revenue due to loss of payroll tax deductions. Government not only lost actual income, but it lost the disguise of the SS revenue stream’s offset.

It’s the old “pay me now or pay me later.” 2008 was "later."