Senator Graham's Magical Napkin

By on May 31, 2015 in Current Events with 107 Comments

Over and over again, the media and experts tell us that financing shortfall in Social Security is relatively easy to address.  Conventional wisdom presents options for Social Security as though the problem with system is one of political will rather than one of economic resources. Basically if politicians could just get along, all of Social Security’s troubles would evaporate.

The latest to make this claim is Lindsey Graham, who reportedly said “you could [design a plan to fix Social Security] on the back of a napkin.” There is no way to be polite about this statement.  If you believe that Social Security can be solved in 15 minutes or on the back of a napkin, it is because you have an inner struggle with the meaning of commas and zeros in very large numbers.

The problem isn’t politics.  It is economics. In 2013, Social Security created $900 billion in unfunded liabilities simply because the clock moved forward by a year.  That sum is greater than all of the revenue collected in the period by the program in all forms.  In English, this comparison says that Social Security could have suspended benefits over the entire year of 2013, and the system would have been in worse shape at the end of December than it was at the beginning of January.

In response to this challenge, Senator Graham says that he intends to ‘dust-off’ the Simpson-Bowles report.  The revised version of that report has been collecting dust since 2013.  In that report, the authors concede that additional cuts and taxes will have to be found because “75 year shortfall actuarial shortfall has increased significantly” since the report was originally released.  Since the time of the updated report, the shortfall has grown by another roughly 2 trillion dollars.

Clearly, the detail of the Simpson Bowles proposal does not fit on the back of a napkin.  So what fits on the back of a napkin?  Here is the plan:  “Our children will pay the taxes we won’t.”  Every reform within the Simpson Bowles plan falls disproportionally upon future generations.  They will wait longer for benefits and sustain the largest benefit reductions.  Many voters today will not even be affected.  Some current voters will get a raise.

What does the rest of America get? For roughly $10.6 trillion(in 2014 $s), we buy projected solvency. Solvency is a peace in our time approach, in which we make our problem an even bigger problem for our children.  It is the definition of kicking the can.

The problem with Graham’s magic napkin is that assumes that Social Security operates in a vacuum separate from a government working in perfect order. His analysis factors in the positive impacts on Social Security without considering the consequences on the broader economy.  It is possible that his napkin will fix Social Security by breaking everything else.

All tax increases come with an unstated cost: a tax dollar raised in payroll taxes cannot be raised for another purpose, say debt reduction. Taxes compete against each other within the tax base, much like two straws sipping from the same malt. So increasing tax revenue simply changes the priority of Social Security within the hierarchy of government functions.

All benefit cuts come with an unstated assumption: future workers will be forever willing to contribute to a system that delivers a declining return. Today a typical worker expects to lose money on participation in the system.  Future workers will get back even less. This is an easy assumption for policy makers because those workers have no vote today.

The problem is that one day these workers will have a vote, and Graham and his magic napkin will be gone.

© 2016 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

Tags:

About the Author

Brenton Smith (A.K.A. Joe The Economist) is the founder of “Fix Social Security Now” which provides information on all alternatives in the public debate on Social Security through its site www.FixSSNow.Org.

Top