George Will Cites Blahous on Social Security in Fiscal Cliff Negotiations

An excerpt from George Will’s column in The Washington Post:

When Sen. Richard Durbin (D-Ill.) said,“Social Security has not added one penny to the deficit,” Charles P. Blahous III, a member of the Social Security board of trustees, wrote to The Post to say that in 2012 this program will add $165 billion to the deficit because benefit expenditures exceed Social Security tax revenue by that amount and “this gap is filled entirely by revenue that the federal government borrows.” The fact that the second-ranking Senate Democrat is off by 16,500,000,000,000 pennies reveals the sort of precise thinking that got the country into its current condition and that supposedly will produce a cure. It is enough to make you want to hop in your Fisker and drive off a fiscal cliff.

For additional information, please see below.

Mercatus Center senior research fellow and public trustee for Medicare and Social Security Charles Blahous on fiscal cliff discussions:

“[T]he statement that Social Security doesn’t add to the deficit is unambiguously false.”

Social Security

“There are two fatal flaws in the argument some have made that Social Security should be left alone because it doesn’t add to the deficit.

"First, Social Security faces a dire threat in its own financing shortfall irrespective of the larger deficit, and it absolutely has to be dealt with promptly for the program’s own sake. Our time for fixing Social Security’s finances is rapidly running out.

"Second, the statement that Social Security doesn’t add to the deficit is unambiguously false.

“Social Security is expected to add roughly $165 billion to the federal deficit in 2012. While total benefit payments are roughly $789 billion, total tax revenue generated by the program is $624 billion. Simply put, the difference between Social Security's incoming tax revenue and outgoing expenditures is its effect on the deficit.”

For additional information, please see Dr. Blahous’ recent study, “The End of Social Security’s Self-Financing: What Does it Portend for Social Security’s Future?”; a recent guide to the 2012 Trustees’ report http://www.economics21.org/commentary/guide-2012-social-security-trustees-report; and a further explanation of this subject by Dr. Blahous, below.

Blahous:

— “It is generally understood that to the extent Social Security is financed with incoming dedicated tax revenues, it does not add to the deficit. This year it’s bringing in $593 billion in payroll taxes and another $30 billion in benefit taxation. That’s a total of $623 billion, or $165 billion less than expenditures. How is this other $165 billion in benefit payments being financed? $112 billion comes from transfers from the general fund. Again, it is unambiguous that these payments clearly add to the deficit; they were financed purely by the issuance of additional federal debt. The remaining $53 billion in benefit payments are being financed via interest payments from the general fund to the Social Security trust funds. These interest payments also add to the deficit because they are not associated with incoming revenue to the US Treasury.”

— “Within academia there has been some debate about the fiscal significance of cash payments of interest to Social Security, with the preponderance of evidence finding that they add to federal deficits. But about the payments financed by general revenue transfers there is not even an issue to debate; they are purely debt-financed. Altogether, Social Security is adding substantially to the deficit this year, to the extent of $165 billion.”