This week the Trustees of the Social Security program released their annual report. The recession has taken a toll on the program’s finances: the system will run deficits beginning in 2016 rather than 2017 and the program’s trust fund will run out in 2037 rather than 2041. (I’d guestimated something close to this in an earlier blog post.) Due to the recession and to faster-than-expected increases in life expectancies, the long-term 75-year deficit increased by 18 percent, from 1.7 percent of payroll to 2.0 percent of payroll. This implies that if the 12.4 percent payroll tax were immediately and permanently increased by 2.0 percentage points (or benefits were cut across the board by 13 percent), the system would remain solvent through 75 years. In the 76th year, however, it would once again become insolvent. This means that workers who paid a full career of tax increases would not receive their promised benefits. To make the system sustainably solvent would require an immediate increase in the payroll tax of 3.4 percentage points, to 15.6 percent of wages.

So unless our view of the future changes radically, Social Security needs reform. But why should we fix Social Security today? Three reasons:

First, fairness: Social Security’s treatment of different generations of Americans is declining, such that those who retire in the near future will receive much higher benefits relative to their taxes than those who retire later. For instance, this study from the Social Security Administration shows that a typical couple retiring today will receive around a 2.3 percent rate of return from Social Security, while a typical couple retiring in 2050 will receive around a 1.7 percent return. Compounded over a full career of paying taxes, these differences amount to a lot. By acting today, we can lower returns a little for near-retirees so we do not need to hit future retirees as hard.

Second, economic efficiency: The necessary tax increases or benefit cuts I cited above are if we act today—and only if we act today. If we wait, the necessary changes will be larger. If we waited until the system became insolvent in 2037, we would need to increase taxes by around 3.9 percentage points, with further increases to come. It is a standard finding in economics that the “deadweight loss” of a tax rises with the square of the tax rate. Whatever we are going to do, it hurts the economy less if we do a little to every generation rather than hit certain generations a lot harder.

Third, uncertainty: People planning for retirement know that something will happen to Social Security, but they do not know what, when, or to whom. The sooner we act, the sooner people can adjust their plans to account for those changes.

Given all this, it is worth commenting on an article in Salon written by the New America Foundation’s Michael Lind, in which Lind pushes back (hard!) against these kinds of arguments.

Lind’s article, subtly titled “Let’s Cut Social Security to Pay for Banker Bailouts!” (exclamation point in original) is a collection of the usual arguments against reform, spiced up with a bit of conspiracy theory to keep things interesting. Lind’s basic premise is straightforward and timely:

The coalition of libertarian zealots, Jeffersonian conservatives, center-right Democrats and bankers and brokers who would like to earn fees or commissions from the diversion of Social Security payroll taxes into IRAs recycles the same arguments against Social Security, rain or shine, boom or bust.

That’s quite a crew. While he forgot the trilateral commission and the elders of Zion, I’m sure they discreetly turn up at the meetings. In any case, Lind anticipates the worsening of Social Security’s finances in the latest trustees report by pointing to how much their estimates have changed over time:

Should you be concerned? No. Relax. When estimates vary so much, it would be crazy to try to make public policy for the United States of nearly half a century from now.

In fact, in standard economic reasoning, uncertainty regarding the system’s finances is a reason to act sooner, not later. Uncertainty works both ways, so there is as good a chance that things will be worse than projected as better, and people will willingly incur costs today to insure against those worst-case outcomes. If Lind does not understand this, he should just substitute the phrase “global warming” for “Social Security” and see if that changes his mind about whether uncertainty implies a lack of urgency.

Lind also warns against this “bogus argument”:

We have only two choices, or a combination—cutting benefits or raising the payroll tax. False. There are at least two other choices that the deficit hawks never mention. One is more rapid economic growth, which would make it easier to pay Social Security taxes in the future without either benefit cuts or tax increases. The other option that the doomsayers never discuss is an infusion of money from other revenues, to supplement the payroll tax.

This is just one of a series of straw men in Lind’s article. Faster economic growth is great, but a) no one has any clear idea how to produce it over the long term; and b) its effects on Social Security are limited because benefits are indexed to wage growth. That is, higher taxes today equal higher benefits tomorrow. Even doubling the rate of wage growth would erase only about half the Social Security deficit. (Calculate it yourself from this table.) And there is no way any policy is going to double the rate of wage growth. (For those who like math, click here for a technical paper showing that faster growth could actually hurt solvency over the long term.) Second, no one has denied that we could look outside of Social Security for funding; in fact, a number of reform bills sponsored by Republicans use general tax revenues. But using income taxes rather than payroll taxes to fund Social Security deficits does not change the size of the deficits, although it does likely worsen the economic distortions of funding them.

Here’s another one:

Dishonest deficit hawks also won’t tell you that the Social Security shortfall, at its worst, is only a minor cause of the total budget deficit, which mainly has other origins. Among those are the off-the-budget wars and the Bush tax cuts, which, if they had been made permanent, would have created a 75-year shortfall between three and six times greater than the Social Security shortfall.

Yet another straw man. I’m not aware of any budget hawks saying that today’s budget deficit is caused by tomorrow’s Social Security deficits. Moreover, my understanding is that the Iraq war has cost around a trillion dollars. Social Security’s 75-year shortfall is around $5 trillion, in present value. Medicare’s shortfalls are in the $30 trillion-plus range.

Lind’s comparison of the size of the Bush tax cuts to Social Security’s deficit is fundamentally misleading. Because the income tax brackets are not indexed for wage growth, literal “current law” implies an effective doubling of tax rates and revenues in coming decades. By this logic, though, anything other than doubling taxes is a “cut.” But even if the Bush tax cuts were made permanent and the alternative minimum tax were indexed for inflation, income tax revenues would increase as a percentage of GDP, and by more than enough to fix Social Security. I addressed this argument in greater detail in the Wall Street Journal last year.

There's still more:

Social Security and other entitlements are responsible for unfunded liabilities of more than $100 trillion—and as the baby boomers begin to retire, the bill is coming due! Total nonsense. About a decade ago, conservative and libertarian economists who oppose Social Security, Medicare and other entitlements came up with a clever rhetorical strategy. They would calculate the gap between the payroll taxes that pay for these programs and estimated costs over time. But there was one problem: The gap isn't all that scary, at least in the near future. So in order to frighten the American people and their elected leaders, deficit hawks cite the sum total of Social Security’s “unfunded liabilities” over 75 years. But even this—a paltry $4.3 trillion over three-quarters of a century, according to the 2008 report—isn’t sufficiently terrifying.

Does “total nonsense” mean that these numbers are wrong? If so, Lind does not present any evidence to that effect. Moreover, it was not “conservative and libertarian economists” who decided to measure Social Security’s finances over 75 years. In the 1960 trustees report, for instance, the Social Security Administration’s actuaries projected costs out through the 2040s. The more recent “infinite horizon” measures, which Lind presumes also came out of the right-wing conspiracy, in fact were pioneered by economists like Alan Auerbach (who, last I checked, was not a Republican).

Here is a related one I like:

The anti-Social Security lobby always presents the “unfunded liabilities” of “entitlements” in scary dollar terms, rather than as percentage points of GDP. Here’s why: Over the next 75 years, the Social Security shortfall at most hovers around 1 percent of total U.S. GDP over that same period. Yes, that’s right—around a whopping 1 percent of U.S. GDP.

I’m pretty sure they do not always present Social Security’s shortfalls in dollar terms. In any case, though, 1 percent of GDP is the figure if we enact reform today, which is precisely what Lind seems to be opposing. Moreover, is 1 percent of GDP supposed to be a small number, when total government spending is only around 20 percent of GDP and we face significant cost increases in other entitlements as well?

And finally:

Anyone who says that the costs of the bailout mean we must now cut Social Security is literally saying that in order to bail out the bankers who created this crisis we need to slash benefits for American retirees.

Is anyone actually saying that, or is that what Lind would like readers to think people are saying? The fiscal responsibility crowd Lind cites has argued for restraining the growth of Social Security costs well before there was any financial crisis and they make the same arguments today. I have not heard any particularly effective rebuttals to them in Lind’s article.

There is great room for debate regarding how to fix Social Security. One could easily construct an argument for doing so entirely by raising taxes, even if that is not what I would prefer. Social Security is the largest single spending program of the federal budget and its costs relative to its tax base will rise by 35 percent over the next two decades. A collection of factual misstatements, straw men, and conspiracy theories is simply nonresponsive to the challenges this program faces.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute.

FURTHER READING: In “Obama’s Truly Exceptional Budget and Tax Plans,” Biggs writes that despite predicting almost implausibly strong economic growth over the next ten years, the administration is projecting enormous budget deficits. In “Full Faith and Overextended Credit,” Biggs warns that the federal government’s long-term budget could bring about a financial crisis that surpasses the current one.

Image by Darren Wamboldt/Bergman Group.