As published for The Hudson Institute on December 17, 2009:

In the wake of a crushing recession, with sharp declines in employment and government revenues, Social Security is much closer to going into the red than earlier projections had estimated.

Last spring, the Social Security trustees reported that more than 75% of the program’s previously projected near-term surplus had vanished. In September, the Congressional Budget Office offered an even more sober- ing prediction: Social Security will begin running deficits in 2010, and by 2019 will face annual shortfalls in the neighborhood of $60 billion, which will have to be made up out of general revenue.

These reports highlight the growing urgency of Social Security’s trou- bles and the pressing need for change. But merely ringing the alarm bells will do little to improve the political prospects for fundamental reforms. Interest groups purporting to represent seniors are still dogmatically opposed to changing the system; the country as a whole is disinclined to do anything seen as jeopardizing benefits for the elderly; and the down- sides of many of the most commonly proposed reforms are often far eas- ier to see and explain than the long-term fiscal benefits they would bring.

Indeed, the nature of the Social Security system complicates any purely fiscal case for reform. Normally, advocates of government spending must choose between adding to the tax burden and adding to the deficit. But when future Social Security benefits are promised well in excess of pro- jected revenues, the cost does not show up in measures of today’s deficit. Instead of adding immediately to the tax burden, policymakers add to the burden of the next generation, a practice that permits them to duck near-term responsibility for raising taxes while blurring the long-term bud- get realities by quibbling over projections. And as with other entitlement programs, cost increases in Social Security occur on autopilot, so that by default the program stays on a course of ever-rising costs—however unsustainable it may be in the long run. Reforms cannot be made with- out new legislation that could easily be painted as either raising taxes or cutting benefits. The status quo is well entrenched.

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