Via Reihan Salam, Charles Blahous has a piece that mainly centers around the to what extent social security can be claimed to be self-financing. However, in build up he makes a point that I want to respond to.
The ongoing effort to partially convert Social Security from payroll-tax-financing to income-tax-financing – by further cutting the payroll tax as a stimulus measure and replacing the funds with general revenues – may in short order put an end to the longstanding conception of Social Security as a benefit earned by worker contributions. The demise of this conception would also threaten the special political protections Social Security benefits have long enjoyed.
Most Americans do not know all of the details of Social Security finances. They do, however, retain a strong sense that Social Security participants somehow paid for their benefits, and that the program’s Trust Funds represent “their money” in a way that the financing for other government programs does not. This sense gives Social Security benefits an extra political protection relative to other programs. It would likely end if we abolished the Social Security payroll tax, did away with its trust fund, and funded the program with general budget revenues.
This is the type of thinking that I tend to waive away with typical Smithian insouciance.
Social Security – I would argue – has a special status because it cuts checks to old people. Old people are popular. Thus, Social Security is popular. How it is accounted for is of no significance.
What’s nice about this, however, is that we are likely to find out. Charles is almost certainly right about the trajectory of financing.