Simpson’s Comments Undermine Commission Efforts
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The Fiscal Times
June 20, 2010

Republican former Sen. Alan Simpson of Wyoming has served on a number of bipartisan commissions and has frequently spoken about the need to fix the federal government's long-term budget problems. That's why President Obama chose Simpson to be co-chairman of his deficit reduction commission.

But at 78, the irascible Simpson is also known for pithy and colorful language, which was on vivid display last week in a video interview with a representative of Social Security Works, a liberal group opposed to cuts in benefits. Simpson was also condescending and derisive--and wildly wrong about important parts of the Social Security system's past.

Most of all, he gave no hint that he understood that, for the commission's proposals to be adopted, advocacy groups will have to be persuaded that the package is necessary and fair--whether the groups' concerns are about entitlements, taxes or other issues. In short, what Simpson did was to undermine the already slim chances of politicians agreeing on a way to put the government on a sustainable long-term budget policy path.

The interview, by Alex Lawson, was no ambush. Lawson has routinely been waiting outside the closed meetings of the commission--officially the National Commission on Fiscal Responsibility and Reform--to interview members as they come and go. Simpson obviously knew who he was and who he worked for.

Lawson asked if the commission was working on Social Security, and Simpson replied, "We’re really working on solvency… the key is solvency."

"What about adequacy? Are you focusing on adequacy as well?" asked Lawson.

Replied Simpson: "Sure. We have to take care of the lesser in society. I don't know where you get all the crap you come up with. ... We’re trying to take care of the lesser people in society, like we always have in this country, and do that in a way without getting into all the flash words that you love to dig up, like cutting Social Security, which is bullshit. We’re not cutting anything. We're not cutting anything, we’re trying to make it solvent. It will go broke in the year 2037."

Simpson did not explain who the "lesser people" are. Perhaps they are the same as the "small people" living on the Gulf Coast about whom BP Chairman Carl-Henric Svanberg last week said his company cared.

Lawson continued the interview by asking, "What do you mean by ‘broke’? Do you mean the [Social Security trust fund] surplus will go out and then it will only be able to pay 75 percent of its benefits?"

"Just listen, will you listen to me instead of babbling?" Simpson said. "In the year 2037, instead of getting 100 percent of your check, you are going to get about 75 percent of your check. That’s if we touch nothing. So if you'd like that, fine. You’ll be picking with the chickens yourself when you’re 65."

"So we want to take care, we’re not cutting, we’re not balancing the budget on the backs of senior citizens. That’s bullshit," he continued. "We’re not cutting anything, we’re stabilizing the system."

According to earlier comments, Simpson regards proposals for reducing Social Security costs--such as raising the age at which full benefits are paid--as not affecting seniors because it would not apply to anyone now getting benefits.

In the interview, Simpson maintained Social Security is already insolvent because it is paying out more than it is getting in tax revenue. It is not clear whether that will be true for the current fiscal year or the next few years, but it will be happening not too far in the future.

Then Lawson asked, "But what about the $180 billion in surplus that [the trust fund] brings in every year [in interest payments on the Treasury securities it holds]?"

"There is no surplus in there. It’s a bunch of IOUs," Simpson said. "Listen. It’s two-and-a-half trillion bucks in IOUs which have been used to build the interstate highway system and all of the things people have enjoyed since it has been set up."

Since Social Security finances were overhauled in 1983, tax revenues have far exceeded costs. That surplus went into the trust fund, was invested in Treasuries and has been earning interest for almost 30 years. Those annual surpluses meant that the government did not have to borrow as much from the public to finance whatever it spend money on. (However, interstate highways have not been financed even indirectly by Social Security surpluses, but rather by motor fuel taxes.)

Whenever tax revenues don't cover Social Security costs, Simpson said, " What do they do? They go to that trust fund and say, ‘We need the IOUs out of it.’ And they say, ‘You can have them, but you have to pay for them.’ So you’re taking a double hit on your own government. Makes no sense."

Indeed, Simpson makes no sense. What is the "double hit"? The government didn't have to borrow in the past, or pay interest on what it didn't borrow. Now it has to borrow from the public and pay the interest. There's no "double hit" involved.

Finally, Lawson said that his understanding was that part of the justification of the 1983 changes was "prefunding the retirement of the baby boom by building up that huge surplus."

Simpson responded, "They never knew there was a baby boom in '83."

Well, Alan Greenspan, who headed the bipartisan commission that proposed the 1983 changes, would tell Simpson something different. The big demographic shift that began right after World War II was precisely why Social Security was expected to face a deficit as the number of workers relative to beneficiaries began to decline when the Baby Boomers began to retire. And that was why taxes were raised and benefits were cut then--to build up a trust fund surplus so benefits could be paid.

Clarification: This article has been clarified to include the first part of Simpson's answer to a question about adequacy of Social Security benefits.

What do you think of Simpson's comments? Add your opinion in a comment below.

covered the Federal Reserve and the economy for 25 years at the Washington Post before joining Bloomberg News in 2004. In 2009 he began writing freelance pieces for, among others, Thomson Reuters, and is widely recognized for his ability to interpret the Fed.