Given the conversation going on in comments I thought I’d contribute some thoughts about federal deficits and Social Security. The following graph illustrates the surpluses in Social Security (Revenues – Expenses) during the Clinton Administration:
and this graph illustrates shortfalls in Social Security:
As you can see, Social Security expenses have exceeded revenues since 2010, largely because the long-anticipated retirement of the Baby Boom generation increased the ratio of beneficiaries to workers.
In only one year of Bill Clinton’s presidency (2000) did the federal surplus exceed the Social Security surplus.
I think that Bill Clinton deserves credit for not increasing his spending faster. And he didn’t create the “unified budgeting” (it had been in place in one form or another since the 1960s) but he did benefit from it.
The retirement of the Baby Boom generation was one of the most predictable fiscal events in American history. Once Social Security shifted from generating annual surpluses to requiring redemption of Trust Fund securities, a source of financing that had helped mask the size of the underlying federal deficit disappeared. I think that the two political parties share the blame for the budgetary fix we are presently in. IMO the simplest fix would have been to maintain the taxable wage base at roughly the same share of national wage income that it covered in 1983. Better yet FICA max could have been removed entirely and applied to all wage income.
IMO the message to take from this is bite the bullet. Reforming Social Security is politically painful. Do what’s necessary as soon as you can.
There is a corollary to that: there are no mulligans in politics. Simply putting a policy in place has implications and creates new challenges that would not have existed but for the policy. We have been pretending that we could just finetune our policies for more than a century. Social Security illustrates this broader lesson: every policy creates future obligations and constraints. Political systems often behave as though policies can be adjusted indefinitely without consequence but eventually demographic, economic, and fiscal realities arrive and require choices.
