Counterpoint to 11/19/99 Star Tribune Editorial

The Star Tribune's Friday editorial entitled "Foreign Aid - Reject bogus Social Security connection" reveals a lack of understanding about Social Security and its interplay with the federal operating budget and the national debt.

First of all, the editorial states that "Social Security is unlike private pension funds in that it has always been a pay-as-you-go operation." While Social Security used to be entirely a pay-as-you-go operation, it is now a mixed system, one that does at least partially attempt to set aside funds to pay future benefits. The payroll tax rates are set such that Social Security is currently taking in much more each year than it is spending in that year, with the goal of amassing approximately $4 trillion by the year 2020. Thereafter, Social Security will spend more each year than it takes in, until 2034, when it will have depleted this reserve. From then on, it will have enough current receipts to fund only 75 percent of current benefits. Were we not setting aside funds in this manner, the date at which annual benefit payments exceeded annual revenue would come much sooner.

Secondly, it's true that when an expenditure pushes the federal operating budget into the red, Social Security funds are not tapped, at least from an accounting standpoint. In other words, the Social Security Trust Fund balance will not be affected by an operating budget deficit. The editorial writer appears to understand this, but at the same time misses the larger picture with the statement that "it would in no way jeopardize the nation's ability to meet its Social Security obligations." It most certainly does.

While it's true that operating budget deficit spending does not decrease the Social Security Trust Fund balance, it does increase the national debt, which has the same negative effect on the nation's wealth-producing capacity. If the operating budget deficit is $20 billion, that's $20 billion that is not available in the capital markets for the purchase of plant and equipment, thus impairing our ability to produce future income. Whether the $20 billion reduces the Social Security Trust Fund balance or increases the national debt is irrelevant. Its effect on the capital markets is the same, and its effect on the nation's ability to meet its Social Security obligations is the same.

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