It is becoming increasingly clear that the terrorist attacks against our country, and the possibility of future attacks, have caused not only personal tragedy but economic turmoil as well. There is now agreement in Congress that we must respond vigorously to both the physical and economic threats facing our nation. Any response to the economic downturn should be both temporary and directed at those people suffering the most.
At the onset of the last several recessions, the government ran large budget deficits. This made it difficult to use fiscal policy to stimulate the economy. Fortunately, we are not in a similar situation now. If we consider Social Security Trust Fund revenues, the United States still has a budget surplus, despite the expense of recently enacted tax cuts.
Congress has previously put these funds in a so called “lock-box,” placing them off-limits for current consumption and instead using them to pay down the national debt. This strategy makes sense during strong economic times. Paying down the debt improves our financial strength and puts our country in a better position to meet future Social Security obligations. In creating the lock-box, however, Congress recognized that some world events, specifically a recession or a declaration of war, might warrant unlocking the lock-box.
Funds previously off-limits are now necessary and should be used to invest in our nation's infrastructure and people. In past recessions, we have recognized that spending money, even if it caused a temporary deficit, was worthwhile to stimulate our economy and protect those Americans hurt most by an economic downturn. Fortunately, in our current economic slump, we need not engage in deficit spending. The funds are available and we should use them.
The consensus on Capitol Hill and in the administration appears to be that Social Security revenues can be used to stimulate the economy.
But how and for what reasons? Because opening the lock-box is justified by temporary conditions, we should require that the funds be spent to address specific temporary problems. We should fund programs designed to aid people harmed by the faltering economy.
Some have suggested that these funds should be used to provide yet another tax cut, but many of the proposed tax cuts fail to provide help to those who need it and who cannot wait for the help to trickle down.
Beyond that, the permanent tax cuts suggested by some in Congress will increase the budget deficit and could place the future solvency of the Social Security Trust Fund at risk. Social Security funds should not be used in this fashion. A permanent change in the tax code cannot be characterized as a temporary economic stimulus worthy of spending Social Security revenues. Any stimulus package, should be temporary, fiscally responsible, and directed to those people most harmed by our current economic situation.
Our country's situation is similar to that of a couple saving for retirement who, when faced with unexpected economic tragedy, decide to save less than they did before. This country has been saving and paying down our national debt so we will be better prepared to meet future obligations. But a temporary decrease in our savings rate will not have a long-term impact on our economic strength. In fact, government spending can provide the stimulus necessary to halt our current economic decline, and thereby actually strengthen our ability to meet future Social Security obligations.
A permanent change in our fiscal policy, however, will not provide the temporary jolt our economy needs. Instead, a permanent change will lead to increasingly large budget deficits and will decrease our ability to meet our Social Security obligations in the future.
What we need now is an immediate and temporary approach. Increased spending should be used to support our military, invest in our infrastructure, and provide assistance to the poor and working people harmed by the current economic decline. If we take this approach, our country and our people will be better off in the long run.
Donald B. Tobin, assistant professor of Law at Ohio State University in Columbus, is a former tax attorney in the U.S. Department of Justice, and a former staff member on the U.S. Senate Budget Committee.
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