The report from the Social Security trustees this week showing the Social Security trust fund running out three years earlier than predicted last year, is certain to revive talk of entitlement reform on the campaign trail.
The Obama administration quickly said it would not consider any fundamental changes to the program, while Mitt Romney's campaign criticized the president's inaction on the entitlement program. (Romney generally supports raising the retirement age for younger workers.)
The familiar debate between the candidates will continue. But an article in Forbes brings up a fundamental point about how to understand the Social Security trust fund that illustrates why all sides can find justification for their point of view in the trustees' report.
In Forbes, Jeffrey Brown points out that there are two main ways to look at Social Security -- as a self-contained program or part of the federal budget that contributes to the deficit. He channels the Committee for a Responsible Federal Budget to argue the latter position in a hypothetical debate against the National Academy of Social Insurance. An excerpt:
NASI: “Of course the interest should count as income. The interest grows the trust funds, and the trust funds represent a legal claim by the trust funds that will be backed by the full faith and credit of the U.S. government.”
CRFB: “Yes, but while these bonds – and their interest – represent an asset to Social Security, they are a liability to the U.S. Treasury. And because the Treasury spent that money rather than saving it, it is crazy to think that we should count this as income. The interest payments are just an accounting fiction, not a real flow of money into the government as a whole.”
CRFB itself explored the difference in how you can interpret Social Security's impact on the budget in a paper last year, concluding the program is in need of reform regardless of how you view it.
And CRFB echoed that conclusion in their analysis of the 2012 trustees report:
The significant deterioration in Social Security's projections should be alarming. Large immediate benefit cuts face disability benefit recipients in only five years, while overall insolvency looms in twenty years. These dates should give a sense of urgency to lawmakers.
Social Security card image via ShutterStock