Last week, columnist Robert Novak reported that Rep. Bill Thomas, R-Calif., chairman of the powerful House Ways and Means Committee, had signed onto legislation that would create private accounts out of the Social Security "surplus." Supporters of Social Security reform feel that this is doable legislatively and would be a down payment on fundamental reform, which has stalled in Congress.
The problem is there isn't some pot of money out there to finance the cost of creating these new accounts. The unified federal budget deficit will simply rise by the amount of the cash surplus in Social Security -- the amount of current Social Security tax revenue in excess of that needed to pay current benefits. This would be about $80 billion per year to start. But as the Social Security surplus falls to zero in 2017, the amount of money available to finance personal accounts will also fall to zero.
Supporters of this proposal blithely assume that federal spending will be cut by enough to avoid a massive increase in the deficit. But there is not a scintilla of evidence to suggest even the remotest possibility that this will happen. It is revealing that no specific budget cuts are detailed in the legislation, nor is there even any mechanism by which this might be accomplished. It is simply assumed.
According to Novak, this is not a concern because the rise in the deficit will bring pressure on Congress to cut spending. As he put it, the rise in the deficit "is no real problem for conservatives, who correctly view a big deficit as a deterrent on runaway spending."
One upon a time, I believed this idea, which is often called the "starve the beast" theory. The premise is that there is some level of the deficit that is "too big," beyond which irresistible political pressure will be brought to bear on Congress to cut spending. Therefore, the "conservative" strategy is to cut taxes any way possible so long as federal revenues go down. The increase in the deficit will force down spending, thus leading to smaller government.
This is really the opposite of supply-side economics, which sees many tax rates as being too high to maximize revenue. For example, it is now generally accepted that a capital gains rate much above 15 percent will actually reduce revenue. If the rate is higher than that, then a cut in the rate will probably raise revenue. The idea was to analyze the tax system and find these "free lunches," where tax rates could be cut at little, if any, loss in revenue.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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