But I Can't Follow the Money

A group of Republicans from the Ways and Means Subcommittee on Social Security (Chairman McCrery and Representatives Johnson, Shaw, and Ryan), joined by Senators Sununu and DeMint, have offered a proposal to do ... something ... with the Social Security surplus. Here's the press release. Here's the accompanying summary. Here's a page that will have the video from C-SPAN for a while. Here's a valiant attempt by the New York Times to make sense of this.

Let's start with the summary. It begins with three principles:

1. Social Security taxes should only be used for Social Security.
2. The Social Security surplus should not be used to fund other government programs.
3. The surplus should not be used to mask the true size of the national deficit.

I don't know if we have three unique principles here, but we get the idea. The presence of surpluses in the Social Security system should not facilitate higher expenditures elsewhere in the government's budget. One way to do that would be to proactively announce and adhere to a policy that balances the budget--measured excluding the Social Security surplus--over the business cycle. I noted this in my testimony to the Subcommittee on Tuesday.

This proposal doesn't seem to go that far. Instead, it requires that all Social Security surpluses be used to fund accounts invested in Treasuries. Here's where my confusion comes in. It cannot simultaneously be the case that:

1. Actual money goes into these accounts;
2. The trajectory of the Trust Fund is not lowered;
3. The reported budget deficit is not increased; and
4. Government expenditures are not lowered.

The hope is the #4 is the one that won't hold--government expenditures should fall. This crew needs to show me how they expect #4 not to happen before I will believe the other 3 will happen. If they can, I will applaud very loudly.

But I remain confused about the rollout of this plan. For example, about 15 minutes into the press conference, a reporter asks McCrery (the key question of) how he will fund the programs that are now being funded by the Social Security surplus once the SS surplus is channeled to these accounts. He gives a non-answer and then says that "there is no change in the deficit whatsoever as a result of this legislation" but that "there will be an increase in the debt." That seems like a gimmick to get around #3 above.

I see that I am not alone in my confusion--see Mark Thoma and William Polley in response to DeMint's version of this proposal.

If anyone working at the Subcommittee would like to explain what I am missing, I would be happy to post a follow-up.

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