May 3 2012
Is America Up To Solving The Coming Fiscal Crisis?
Carrie L. Lukas
The Social Security Trustees’ annual report is a back-of-the-paper news item. It confirms what anyone paying attention already knows: Our national pension program is in poor financial shape and worsening rapidly. The ranks of the retired are swelling, so the programs’ costs are swelling too. Paying all promised benefits will be a big burden on the already out-of-balance federal budget. Tough choices need to be made.
The real question is how will Americans—and particularly our so-call leaders—handle the financial crisis on the horizon?
Sadly, prospects for a positive outcome are bleak, if the National Organization for Women’s reaction to the report is any indication. NOW President Terry O’Neill cheered: “Trustees for the Social Security Trust Fund report today that the program can pay full benefits through 2033… Social Security has an accumulated surplus of more than $2.7 trillion and can pay 100 percent of benefits for the next several decades.”
This is an intentional misunderstanding of government accounting meant to disguise the real problems confronting Social Security and taxpayers. Yes, Social Security has a “Trust Fund,” which means that government accountants have dutifully tallied how much of the payroll tax dollars meant for Social Security have been spent on other government programs to date. As a result, technically, the general treasury “owes” the Social Security Administration trillions.
Yet this is the equivalent of saying that my left pocket owes my right pocket a million dollars. It would be foolish to go on a shopping spree based on my right pocket’s assets. The Social Security Trust Fund may be an asset for Social Security, but it’s also a taxpayer liability. Congress will have to raise those funds through taxes or new borrowing to pay SSA back.
This isn’t complicated government accounting. This is absolutely clear.
In 2011, Social Security needed $148 billion on top of payroll tax revenue to pay full benefits. That increased our annual deficit, the national debt, and meant less was available for other programs. To put that in perspective, total discretionary spending in 2011 was $1.35 trillion. So Social Security needed the equivalent of more than ten percent of all discretionary spending—in addition to all Social Security payroll tax revenue—to cover benefits. Social Security’s demand on the general budget will only increase in the future, making it difficult for Congress to fund core functions.
Optimistic Americans may assume that our elected leaders, at least, would be more honest when confronting such obvious, unavoidable financial challenges. Yet the current debate on Capitol Hill over reforming the United States Postal Service suggests otherwise.
Much like Social Security, USPS has a fundamental financial problem. USPS has witnessed steep declines in the volume of mail and has high labor costs due largely to its heavily unionized workforce. As a result, the post office loses billions every year, and is on track to lose $21 billion annually by 2016.
The Postmaster General asked Congress to authorize structural changes to USPS’s business model, including ending Saturday delivery, adding more time for delivery, closing some offices, increasing the cost of a stamp by five cents, and downsizing its workforce. A business consultant would immediately green-light such common sense changes to a struggling operation. But that’s not how it works in Washington, where interest groups—including the labor unions, mailers, printing companies, and rural communities—lobby to protect the status quo.
As a result, the Senate passed a postal “reform” bill last week that prevents key structural changes. As the Postal Service’s governing board gloomily put it, “the Senate’s bill would not enable the Postal Service to return to financial viability.”
In an age of trillion-dollar budget deficits, it may be easy for Congress to tack on another twenty billion to bailout a well-regarded American institution. Yet American taxpayers—and anyone who cares about the future of the American economy—should be concerned. If Washington cannot muster the political will to tackle the predictable and relatively minor financial troubles of the Postal Service, how will we ever address the enormous challenges facing Social Security and Medicare?
Head-in-the-sand governance and politicking can only go on for so long until economic reality hits. When it does, Americans will pay a steep price.