The Bush Administration Is Even Crazier Than You Imagined

I just wrote something about the Social Security Trust Fund. The point was that a default on the Trust Fund would be a massive transfer of money from the poorer 95% of Americans to the richest 5%.

Because that's so, it's easy to assume the Bush administration's privatization plans would involve such a default. I know I assumed it. And Matthew Yglesias assumes it here.

Interestingly enough, though, this assumption is wrong. (I didn't figure this out myself; someone explained it to me.) Bush's plan would not require a default on the Trust Fund. On the contrary, in fact; the Trust Fund would be redeemed and then some.

If you want details (including exciting graphs!), they're below. If not, the point is that in this instance the Bush administration is not wholly driven by crazed greed. They're also driven by crazed ideology.

The Congressional Budget Office recently compared the current Social Security system to a privatization plan endorsed by Bush (called "CSSS Plan 2").

Under current law, the CBO projects outlays (ie, benefits) won't overtake revenue (ie, payroll taxes) until 2019. When that happens, the Trust Fund kicks in. This will entail either lowered government spending elsewhere, rolling the Trust Fund debt over in private markets (ie, increased federal deficits), higher income taxes, or some combination of the three. The CBO projects the Trust Fund will be exhausted in 2052.

Under CSSS Plan 2, the revenue coming into the Social Security system would be reduced immediately, because a big chunk of payroll taxes would be diverted into private accounts. Thus, the Trust Fund would be needed just about as soon as the plan is enacted... meaning lowered government spending, higher deficits, and/or higher taxes.

Benefits would also be cut, but slowly at first. So the CBO projects the Trust Fund would be exhausted by 2036. At that point, the rest of the government would have to come up with more money for Social Security... meaning more cuts in government spending, increased deficits, and/or higher taxes. It would only be after 2050 that benefit cuts would be large enough so that outlays would be lower than revenues.

So to summarize, here are the dates the CBO projects:

CURRENT LAW
2018 Social Security outlays exceed payroll tax revenues; Trust Fund kicks in
2052 Trust Fund exhausted

CSSS PLAN 2
2007 Social Security outlays exceed payroll tax revenues; Trust Fund kicks in
2036 Trust Fund exhausted; additional revenue from general fund required
~2050 Social Security benefits lower than payroll tax revenue, so additional general fund transfers no longer required

This can be seen in Figure 1B from the CBO report, below. In both graphs, "Outlays" is higher than "Revenues" for many years. When this is true, the difference has to be made up by the Trust Fund (or for CSSS Plan 2, additional revenue when the Trust Fund is exhausted).

Under CSSS Plan 2, the difference made up by the Trust Fund is somewhat smaller than under current law. But this is because the Trust Fund is smaller under CSSS Plan 2, because contributions cease in 2007 rather than in 2019. It is not because of a partial default on the Trust Fund. (Again, not only is the Trust Fund completely redeemed, more money is required for CSSS Plan 2 after 2036.)

The CBO has also helpfully provided this graph, which compares the effect on total government finances of changing to CSSS Plan 2 from current law.

As you can see, CSSS Plan 2 actually makes the government's finances somewhat worse from now through 2064. And this bill would mostly be picked up by richer households. That's how crazy the Bush administration is.

You are now encouraged to take a short nap to recuperate.

Post edited for clarity.