SOCIAL SECURITY

February 2005
		President Bush's call for reforms to Social Security is part of a broader philosophical effort to promote an "ownership society" in the United States. Dinesh D'Souza of the Hoover Institution at Stanford University and professor Jacob Hacker of Yale University answer your questions about the philosophical differences in the Social Security debate. Special Report: Social Security Reform

Forum Introduction After we baby boomers die off will the imbalance of workers to retirees correct itself? Why not just pay out less to those who have high assets? Why not just have the SSA invest a percentage of the current contributions in index funds? What happened to the "lockbox" idea? Has the Social Security trust fund been used for other purposes?	Gerald Morris of Port Angeles, Wash. asks: Is the current problem with Social Security caused or significantly affected by the government manipulating the fund over the past 50 or so years? Has the fund been used for other purposes? Dinesh D'Souza responds: The sad reality is that there is no designed Social Security "fund." Basically the government takes the money that it taxes out of current workers and pays the money out to current retirees. For the past 70 years the government has been paying retirees far more than they put into the program. Between the 1930s and 1950s, for example, retirees got money even though they paid little or nothing into the program. The government could afford to be "generous" (with other people's money) because the number of workers far outnumbered the retirees. But this will change as the Baby Boom generation ages. That's when the whole scheme is likely to unravel, at least if we don't find a way to fix it in the meantime. Jacob Hacker responds: My previous answer speaks to this question, but let me elaborate a bit on how the trust fund works. Historically, the trust fund was not very large. President Franklin Roosevelt wanted to build up a huge trust fund when the program was created, but conservatives scuttled that idea a few years after the program was established because they didn't want government holding all that money. (Sort of ironic, given the present debate.) Because the economy and workforce was growing so quickly, and there were so few retirees getting benefits, there really was no need to have a large trust fund. But in the early 1980s, changes were made to the program that allowed it to build up so-called surpluses in the trust fund. These surpluses are basically in the form of government bonds. So when the rest of the government is not in balance, Social Security essentially loans money to the rest of the government. This seems strange, but it makes sense. It reflects a commitment to pay promised benefits in the future. And as I said earlier, it probably reduces the overall amount of the debt, and thereby reduces interest payments on the debt. There is nothing inherently manipulative about this arrangement, though it can have bad effects. The most worrisome effect is that government runs larger deficits because the trust fund "masks" the true size of the deficit. The important point, however, is that the trust fund has not been mismanaged by Social Security; the problem is that the budget has been mismanaged by Congress and the president.