Budget Control Act Military Cuts Will Cover the Social Security Shortfall

A key reason that it’s relatively easy to scaremonger about predictions regarding Social Security’s finances decades in the future is that the language often used to talk about Social Security’s finances isn’t immediately comparable to anything else that most people can relate to. A number that isn’t comparable to other numbers you know is a meaningless number. How big a difference is seven trillion dollars? It sounds like a huge number. But in a context devoid of comparable numbers, it’s a meaningless number.

Responding to the 2012 Social Security Trustees report, Robert Greenstein of the Center on Budget and Policy Priorities put the Trustees’ projections about the future finances of the Social Security system in the context of the current debate about tax policy:

The revenue loss over the next 75 years from making [the tax cuts enacted under President Bush] permanent would be about two times the entire Social Security shortfall over that period. Indeed, the revenue loss just from extending the tax cuts for people making over $250,000 – the top 2 percent of Americans – would itself be nearly as large as the entire Social Security shortfall over the 75-year period. Members of Congress cannot simultaneously claim that the tax cuts are affordable while the Social Security shortfall constitutes a dire fiscal threat.

This is, obviously, a politically relevant comparison. Among the 99 percent, the most popular thing to do about the budget is to increase taxes on the rich. Among the 1 percent, the most popular thing to do about the (combined) budget is to cut Social Security benefits. That’s not surprising: each group of people, the 99 percent and the 1 percent, supports the alternative that’s better for them. But as Greenstein said, “Members of Congress cannot simultaneously claim that the tax cuts are affordable while the Social Security shortfall constitutes a dire fiscal threat,” because the tax cuts on the rich and the Social Security shortfall are the same size. If two quantities are the same size, then you cannot claim that one is big while the other is small. This is why it is crucial to put different choices on the same scale. If we are going to talk about the finances of the Social Security system over 75 years, then we have to talk about the consequences of the choices we are now making about tax policy over 75 years in order to compare apples and apples.

The second most popular thing to do about the budget among the 99 percent is to cut military spending. This suggests the question: is it possible to put the projected future shortfall of Social Security’s finances in the context of choices that we are currently making about the military budget?

Under the Budget Control Act, roughly half a trillion dollars is supposed to be pulled out of otherwise planned military spending over the next ten years. This is called the “sequester,” and members of Congress who get a lot of money from military contractors hate it, and they want to repeal it. Of course, assuming that the target for reducing projected deficits remains the same, if the military spending sequester is repealed, that money has to be replaced, either through increased cuts to domestic spending (the theme of the Ryan budget) or through a mix of cuts to domestic spending and revenue increases (which is what 1 percent pundits want President Obama and Congressional Republicans to agree to do in the lame-duck session after the election.)

So, let us compare two worlds: one in which the military spending sequester is repealed, and one in which it is not repealed.

In world one, the military sequester is repealed, the military budget grows at roughly the rate of inflation as President Obama has proposed for the next ten years; and then for the next 65 years, it also grows at the rate of inflation.

In world two, the military sequester is not repealed, or if it is repealed it is replaced by a cut in military spending of the same amount over ten years (i.e. roughly half a trillion dollars). After the ten years, the military budget grows at the rate of inflation for the next 65 years (now starting from a lower level, so even though it’s growing at the same rate as in world one in the out years, you’re getting savings every year in comparison to world one because you started at a lower level).

According to the Congressional Budget Office, “defense” spending in (fiscal) 2011 was $699 billion. Let’s use that number.

Suppose we think in terms of constant 2011 dollars, just to keep things simple.

So, to simplify, let’s say that in world one, the military budget, in constant dollars, is $699 billion forever.

And in world two, say we do a continuous cut from the military budget over the next ten years of about the size of the military sequester. Our goal is to take out roughly $500 billion in spending from the military over ten years. If we reduce the military budget by 1.5 percent each year in constant dollars, at the end of the ten-year period we’ve taken out about $551 billion. That’s roughly the amount of the sequester. In year 11, in world two, the defense budget is about $601 billion, and that’s where it stays forever.

After 75 years, the total difference in spending between the two worlds is $6.9 trillion.

How does that compare to the size of the projected Social Security shortfall, over 75 years?

Wouldn’t you know: according to this 2011 piece by the anti-Social Security and pro-military spending American Enterprise Institute, $6.9 trillion was the 75-year gap between Social Security’s projected revenues and Social Security’s projected payout.

Now, you could argue that these two things have nothing to do with each other, because Social Security has its own, separate, system of financing: the payroll tax.

But if you look at the claims advanced on behalf of cutting Social Security benefits, a common theme is the claim that “the country can’t afford” the Social Security benefits that we have been promised. That claim has nothing to do with the method of financing.

Well, if the country can’t afford to pay the Social Security benefits that we were promised, then the country can’t afford to maintain current levels of military spending, and the level of military cuts in the sequester must stand. Because the two things are the same size.

As Greenstein might say: “Members of Congress cannot simultaneously claim that maintaining current military spending is affordable while the Social Security shortfall constitutes a dire fiscal threat.”