Bush's SS crisis plan explained to Canadians in a TIMEly manner

TIME canada.com

TIME's online Canadian edition offers a comprehensive and reasonably balanced analysis of the Social Security system, its future financial prospects and various possibilities for reform. The story's main point, though, seems to be that Bush is wrong about the urgency of the crisis.

There is, of course, one sense in which the TIME piece is totally fatuous. "Though policymakers talk of Social Security as a trust fund (or, in the imagery that Al Gore and Saturday Night Live made famous, “a lock box”), it was enacted as an insurance program in which current workers pay for older generations. Today more than three-quarters of payroll taxes go to pay benefits."

The law was titled the Federal Insurance Contributions Act, but that doesn't make it insurance. Who ever heard of making "contributions" for insurance? You pay premiums for insurance. It was just a PR gimmick to avoid calling what it was and still is - welfare. It's not like property and casualty insurance where everybody who is covered pays in and those who have losses collect benefits. It's not like whole life where all premium income is invested and all payouts come from the income earned by those investments. It's not like any kind of insurance at all. At least TIME is right in saying there is no Trust Fund or Lock Box.

Which brings us to the really screwy part of the TIME analysis. They point to the fact that current tax receipts will cover current payouts through 2014 (so far so good), but that the accumulated surpluses will fund the current account shortfall until around 2040. That's nonsense. Or, to put it another way, they are saying the shortfalls for a generation will be made up from the accumulated surpluses in the system. Those accumulated surpluses would be in the Trust Fund that does not exist, wouldn't they?

A more honest, that is to say a less TIMEly, way to put it would be that after 2014 we have a crisis. Assuming that SS benefits can't be cut and it will be a little late to start adjusting the retirement age, some hard choices will have to be made from among these unpleasant alternatives:
1) Increase SS taxes (some combination of raising the SS taxable base and raising the rate of the payroll tax);
2) Increase some other taxes, probably the income tax, maybe even extending the taxability of SS benefits;
3) Cut non-SS federal spending; or
4) Increase the current account deficit through new borrowing.

So, there is a real crisis coming and it will begin to be felt in 2014 and will rapidly worsen as the last of the Baby Boomers (my generation) start to collect benefits.