The Wall Street Journal
$2.2 Trillion Down
March 25, 2005; Page A8

Everyone in Washington has now used this week's Social Security and Medicare Trustees' report to justify his or her political program. We suppose that's better than ignoring it. But as we look at the details, the most important figure in the report has received almost no attention.

That number is $2.2 trillion, which is the difference between the current size of the Social Security "Trust Fund" ($1.7 trillion) and what it will grow to become over merely a decade through 2014 ($3.9 trillion). More precisely, that is the amount of payroll tax revenue that workers will pay between now and 2014 that exceeds what will be spent over that same period on retiree benefits. The Trustees predict the payroll tax will continue to exceed benefits through 2017, but their report breaks out the numbers in detail only through 2014. In any case, $2.2 trillion is a lot of money, even in Washington.

And what will happen to that surplus cash during these next 10 years? Every dime of it will be spent by politicians on current government. Not a nickel will be saved; nothing will be invested in accounts with anyone's name on it. Instead of building assets, or contributing to an increase in net national saving and thus investment, all of it will finance current government consumption.

The reform debate so far has too often detoured into the cul-de-sac of "transition costs" and IOUs and what's going to happen in 2041 when the Trust Fund itself is empty -- or is it really 2042? Who cares? The far more urgent issue is how to capture today's surplus payroll tax revenue and put it to more productive use. If Social Security reform means anything, it ought to mean recapturing some or all of that money.

Yet politicians on both sides of the debate rarely talk about this. That's probably because over the years both Republicans and Democrats have been complicit in spending this Social Security surplus on their own pet causes. We can understand why Democrats would want to continue this ruse even today, since most of them want to pretend there's an account in a bank somewhere that taxpayers own.

But what's up with Republicans? Some of them may fear that if this secret gets out to enough voters, they'll have to stop using that excess revenue to make the budget deficit look smaller than it is. But if they believe in smaller government, they should consider this $2.2 trillion revelation to be truth-in-advertising that shows just how spendthrift Washington is.

Letting individuals keep and invest this excess payroll tax money, which they've earned, is the nub of the entire Social Security debate. And we suspect it's the only argument that reformers have that will trump the scare tactics and accounting obfuscation of opponents.