Paul Krugman's column today in the New York Times, entitled "Republicans Against Retirement" is a masterpiece of obfuscation and innuendo. It asserts that any candidate in favor of addressing the sustainability of Social Security has been bought by big money waging an ideological war at the expense of seniors. The argument has three steps: (1) Social Security is popular and it is politically unwise to suggest reforms, (2) Social Security is financially sound and does not need reforms, so (3) the only reason to suggest reforms is because they are beholden to welfare donors who have nefarious motives.
First, his assertion that "...Social Security does not face a financial crisis; its long-term funding shortfall could easily be closed with modest increases in revenue" is at odds with any clear-eyed look at the program. The most recent report of the Social Security Trustees indicates that the trust fund will be exhausted in 19 years, at which point benefits for those in retirement will have to be slashed by roughly 20 percent across-the-board. That's a crisis. And fixing it would require an increase in payroll taxes of 21 percent - that's hardly "modest." And his own economic logic would indicate that the increase would lop over $200 billion off of 2015 GDP.
Social Security is part of the larger fiscal problem, and that problem is now and not in the long term. In 2015, Social Security will run a deficit of about $90 billion or 0.5 percent of Gross Domestic Product (GDP). Medicare is bleeding red ink at triple that rate - $270 billion or 1.5 percent of GDP. Together, these programs account for more than 100 percent of the non-interest federal deficit.
It gets worse, quickly. In 2025, Social Security's deficit is 1.4 percent of GDP, Medicare's is 2 percent of GDP, and they are combined 425 percent of the non-interest deficit. These are the non-partisan projections of the Congressional Budget Office, which warns that doing nothing will result in damaged economic growth, rising interest payments, and a hamstrung ability of policy makers to respond to future emergencies.
The bottom line is that Social Security needs reforms to improve its outlook and to change the dangerous fiscal trajectory.
Second, it is true that Social Security is popular but the notion that any reform will continue to be a political third rail is open to question. Another way to look at the fiscal outlook is that in 2024 there will be a deficit of $899 billion (and rising) and that $759 billion will be due to interest on previous borrowing. Put simply, the U.S. will be borrowing to pay off previous borrowing. As a matter of arithmetic, every candidate for president in 2016 hopes to be governing in 2024; none wishes to preside over the financial meltdown that would ensue if this course is left unchecked. Instead, the best politics will be to get the spending situation under better control. The best politics will be to provide presidential leadership in favor of entitlement reforms.
Third, the assertion that candidates suggesting reform are puppets of the rich is just that - an assertion. The fig leaf he uses to cover this sweeping generalization is citing a study that surveyed only 83 people in Chicago.
The reality is that Krugman and other progressives are arguing for more generous entitlements and higher taxes at a time when the existing programs and financing are already an economic danger. Why they are opposed to future prosperity is a mystery.