Start with this basic fact. The massive post-war baby boom generation is a demographic bulge moving through the American population like a pig through a python.
Today's boomers bankroll today's Social Security retirees with their payroll taxes, as does every generation. That's the way Social Security was designed -- as a pay-as-you-go system. But boomers outnumber retirees. So, there's extra money in the kitty -- a Social Security surplus.
Here's the dirty little secret. Those surpluses are being used to reduce the president's budget deficits. The president's new budget predicts that this year's deficit will be $427 billion. But it would be much, much larger -- a whopping $589 billion -- without this year's Social Security surplus.
Over the next decade, more boomers will be in their peak earning years, which means the Social Security surplus is going to swell. And the White House plans to use these growing surpluses to reduce future budget deficits even more. In fact, a big reason why they predict their deficits will drop is because the Social Security surplus will grow.
So what happens when the boomer bulge moves into retirement? The president says that by then, around 2018, Social Security won't have enough money to pay them all the benefits that they're due. Well, of course it won't. Because the surpluses the boomers generated before then were used to reduce the budget deficits.
That doesn't mean Social Security is going bust. It only means the federal government has to start repaying all the money it's borrowed from the boomers' Social Security.
That's only fair. After all, the Social Security payroll tax is more regressive than other taxes. You pay the same percent regardless of your income, starting with the first dollar you earn all the way up to $90,000 a year -- and then over that you don't pay a dime.
So if the government's going to depend for years on the boomer's payroll taxes to reduce its budget deficits, by the time the boomers retire it should replenish Social Security with revenues from more progressive income and corporate taxes.
And in the meantime, to be really fair, raise the cap on the amount of wages subject to the payroll tax.
Robert B. Reich is co-founder of The American Prospect. A version of this column originally appeared on Marketplace.
