April 20, 2014

Reckless Guarantee

 

The Social Security Guarantee Act (H.R. 3135) now moving through Congress would require the Secretary of the Treasury to issue a certificate guaranteeing current-law benefits to every Social Security beneficiary.

The Act is a terrible idea. It threatens to lock in Social Security's unsustainable pay-as-you-go promises, undermine the rationale for cost-saving reform, and promote a dangerous and divisive balkanization of the budget. Unfortunately, the Act's political appeal is blinding leaders to the consequences.

A Big Mistake

Let's start with what the Act says. Certificates would immediately be issued to everyone already on Social Security and in the future would be issued to every new beneficiary. These certificates would guarantee to each holder for the rest of his or her life the benefits to which he or she is entitled on the date the certificate is issued. According to the Act, the certificates would constitute an “obligation of the federal government” and “a legally enforceable guarantee.”

The Congressional Research Service questions whether the guarantee would indeed be legally enforceable. But whether it is enforceable or not, the clear intent of the Act is to put benefits beyond the discretion of Congress, and that is a big mistake.

The Act would make reform less likely by hiding the need to do anything about Social Security's underlying imbalance. Trust-fund accounting already masks the program's burden on the rest of the budget. Instead of signaling that Social Security will be in trouble by 2016, when it starts running cash deficits, trust-fund accounting tells us that we don't have to worry until 2038. The Act would worsen this problem by granting additional trillions of dollars in unfunded budget authority to Social Security. Without adding a dime to future revenue, it simply declares that every beneficiary will receive full benefits so long as the Act is in force.

Contrary to supporters' claims, the Act would also make Social Security reform more difficult by separating winners and losers into separate camps. Americans in midlife --- the most politically influential age bracket of voters --- would have a huge incentive to put off reform until they reach age 62, at which point benefits can only be cut for those who come after them.

At the same time, the Act sets a dangerous precedent. If it makes sense to guarantee Social Security benefits, what about other constituencies? Shouldn't civil servants and veterans and farmers have their own separate guarantees? And what about workers? Why doesn't Treasury issue them a certificate guaranteeing that payroll tax rates won't be raised? Going down this road can only result in the balkanization of the budget--and ultimately, of the entire political system.

A History Lesson

Perhaps a history lesson is in order. Ever since Social Security's establishment, Congress has reserved the right to alter benefits at any time -- and over the years, it has repeatedly done so as America's priorities have changed. During World War II, for instance, Congress allowed Social Security benefits to lag behind inflation. During the boom of the 1950s and 1960s, it legislated large real-dollar increases in benefits.

Congress reserved this right because Social Security is a pay-as-you-go system financed by taxes on current workers, not a funded system financed by individual savings. When the Supreme Court ruled in 1960 that Social Security participants accrue no property right to benefits, it was merely confirming congressional intent.

Supporters of the Act want to change all that by setting today's benefit promises in stone. Post 911, one would hope for a bit more humility about the sudden shifts in national priorities that America might encounter in the future. Simple prudence should tell us not to tie Congress' hands by putting one-fifth of the budget beyond the possibility of democratic review. What we need is honest accounting and an open debate, not a reckless guarantee unbacked by real resources.

FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Robert Bixby