| POLICY
- SOCIAL SECURITY
MYTHS V.
REALITIES ON SOCIAL SECURITY in the UNITED STATES
Last updated:
03/13/2005
; Feedback/Corrections should be
emailed to:
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PREFACE
[Washington
Post - brown text is eRiposte edits]:
The campaign will use
Bush's campaign-honed techniques of mass repetition
[er, deception],
never deviating from the script
[er, dishonesty]
and using the politics of fear to build support -- contending that a
Social Security financial crisis is imminent when even Republican
figures [as the
U.S. media loves to say, facts are partisan these days]
show it is decades away.
[Economist
Paul Krugman]:
And the trust fund will last for a long
time: until 2042, says the Social Security Administration; until
2052, says the Congressional Budget Office; quite possibly forever,
say many economists, who point out that these projections assume
that the economy will grow much more slowly in the future than it
has in the past.
...
There are two serious threats to the federal government's solvency
over the next couple of decades. One is the fact that the general
fund has already plunged deeply into deficit, largely because of
President Bush's unprecedented insistence on cutting taxes in the
face of a war. The other is the rising cost of Medicare and
Medicaid.
As a budget concern, Social Security isn't remotely in the same
league. The long-term cost of the Bush tax cuts is five times the
budget office's estimate of Social Security's deficit over the next
75 years. The botched prescription drug bill passed in 2003 does
more, all by itself, to increase the long-run budget deficit than
the projected rise in Social Security expenses.
That doesn't mean nothing should be done to improve Social
Security's finances. But privatization is a fake solution to a fake
crisis.
Markos Zuniga (DailyKos):
Here it is (PDF). The GOP's 103-page playbook
for destroying social security.
In addition to facts and figures they claim show social
security in crisis, the playbook has GOP talking points
on the issue, quotes from Democrats that supposedly show
support for privatization, sample constituent letters,
sample speeches for audiences over and under 50 years of
age, and reports from several candidates who ran and won
on privatization (suggesting that Republicans won't pay
a political price for dismantling social security while
adding $2 trillion to the deficit over the next 10
years).
|
|
SUMMARY Considering
the astonishing amount of distortions, fabrications and propaganda
being passed off as fact on the topic of
Social Security, I thought it
might be useful to compile the real facts in an easy-to-refer format
in order to educate myself as well as readers of eRiposte. This page
provides such a compilation.
The facts are as follows. Social
Security is financially in very good shape today - it is neither going
"bankrupt" nor is it facing a "crisis". Claims
that Social Security has an "unfunded liability" of "$11 trillion"
are outright deception. The retirement of the baby boomers will not
bankrupt social security. As years pass, the projected so-called
"doomsday" on Social Security actually has been pushing out even
farther; plus even at the so-called [fake] "doomsday" citizens will
get 73-81% of the benefits they were promised even if we did NOTHING
today. The myth of
a social security "crisis" is based on the projection that
the economy and productivity will grow much slower in the future than
it has in the past (while, incidentally, privatization is
simultaneously advocated by the Right using the opposing claim that
stock market returns will somehow, in real terms, be much better in
the future than in the past!) What is really in crisis is the Federal
Budget *excluding* Social Security. The programs that are really
raising the prospects of bankruptcy and "crisis" (in a shorter time
span) are President Bush's tax cuts and the Big Pharma Corporate
Welfare Bill, aka the Medicare Bill. Not to mention, by the
definition of "bankruptcy" used by privatization proponents, our
military is "bankrupt" TODAY (not in 2042 or 2052) - why are there
no calls to "reform" the military? Medicare is far more of a problem
- how come reform advocates are not spending sleepless nights
proposing solutions to that?
The Social Security trust fund is not a "myth"; dishonest
privatization proponents use the "myth" term when convenient, while
dropping it when inconvenient. Claims of some Republicans that the
U.S. Government is unlikely or not obligated to pay back the
borrowings from the Social Security Trust Fund are downright illegal
(this is the equivalent of people advocating that others can default
on their credit-card debt with no consequence).
The Bush administration hopes that
the media will keep people uninformed about the fact that massive
Social Security surpluses (the trust fund) have (has) been used for
years to finance the record (General Fund) deficits due to Bush's
massive tax cuts for the super-rich and out-of-control spending on
Iraq and GOP pet projects. Correcting Social Security's projected
shortfall decades from now is actually easier now than it would have
been in the past. An oft-used "scare" metric, the number of
workers per retiree, says little or nothing about the financial
robustness of Social Security; yet this metric is frequently used to
mislead people into believing the hoax of a social security
"crisis". Proposals to index the first social security
payment to inflation rather than wages is nothing more than an
underhanded attempt to usurp taxpayer funds and deny retirees their due.
Privatization of Social Security would
mean a steep drop in program efficiency and sharp increases in
administrative fees, leading to significantly lower benefits.
Privatization requires trillions of dollars in additional borrowing
(in addition to benefit cuts) and speculative investment of
individual's funds in the stock market - the makings of another Bush
driven disaster. Privatization proponents often use highly
inflated/exaggerated stock market return projections to push for
privatization. The Bush privatization proposal, as it stands, would
lead to steep benefit cuts for retirees and poverty for many retirees;
younger workers, women and minorities would be impacted the most.
Claims that the current social security system is "inherently
unfair" to African Americans is an outright lie. The privatization
proposal hinted at by the Bush administration
would also lead to steep benefit cuts for non-retired workers drawing
insurance for disability, or for workers' families drawing insurance
upon the death of workers. It will, doubtless, be another exercise in
class warfare - doling out massive corporate welfare to key campaign
contributors in Wall Street at the expense of the poor and middle
class. In the process, privatization could actually reduce economic
growth and thereby further endanger social security. It must be noted
that Bush-style privatization has been tried before in other
countries, with costly or disastrous results. It is quite likely that
the underhanded objective of the Bush privatization proposal is the
eventual phasing out of Social Security.
In
a real world with a free and truthful media dedicated to fact-finding, this kind of compilation
would not be necessary. However, the U.S. media has a long
history of mangling its coverage on Social Security (and most
other serious policy topics) and unintentionally (or sometimes
intentionally - as is often the case with cable "news"
media) misinforming the American public on many basic facts. This hasn't
changed substantially today. This is a structural problem that
provides the Republican party leadership and its operatives
(especially those embedded in the media in the form of opinion writers
or representatives) an excellent opportunity --- an opportunity to
exploit the tendency of a lot of the media to focus on "he
said-she said" reporting (as opposed to real journalism) which
leads to the uncritical transmission and repetition of misleading or
false statements (from the Right) ad nauseam over the airwaves. The ultimate
result is that Americans are subject to a vast misinformation
campaign, provided relatively inexpensively to the Republican party (Remember
the GOP leadership's unspoken motto: If you tell a lie repeatedly
you can convince people it is the truth. It has certainly worked
spectacularly well, for well over a decade now, to the detriment of
the United States and its citizens/residents).
DETAILS
ACKNOWLEDGEMENTS
INTRODUCTION: How the
Social Security system is set up in the United States and what it has
accomplished
1. Facts on Social Security and
Privatization
1.100
Social Security is Financially in Very Good Shape - it is not going
"bankrupt" and is certainly not facing a "crisis"
1.100.1 The
retirement of the Baby Boomers will not bankrupt Social Security
1.110
As years pass, the projected so-called "doomsday" on Social
Security actually has been pushing out even farther; plus even at the
so-called [fake] "doomsday" citizens will get 73-81% of the benefits
they were promised even if we did NOTHING today
1.120
The long-standing myth of a social security "crisis" is based
on the projection that the economy and productivity will grow much
slower in the future than it has in the past 1.130
What is really in crisis is the Federal Budget *excluding* Social
Security - the Bush administration doesn't want people to know that
massive Social Security surpluses are being used to finance the
record deficits due to Bush's massive tax cuts for the super-rich
and out-of-control spending on Iraq and GOP pet projects (contrary
to Bush's 2000 campaign promises)
1.131 The
programs that are really raising the prospects of bankruptcy and
"crisis" (in a shorter time span) are President Bush's tax cuts and the
Big Pharma Welfare Bill, aka the Medicare Bill
1.132 Claims that
Social Security has an "unfunded liability" of "$11 trillion" are
outright deception 1.140
By the definition of "bankruptcy" used by privatization
proponents, our military is "bankrupt" TODAY (not in 2042 or
2052) - why are there no calls to "reform" the military? Medicare
is far more of a problem - how come reform advocates are not spending
sleepless nights proposing solutions to that?
1.150
The Social Security trust fund is not a "myth"; dishonest
privatization proponents use the "myth" term when convenient, while
dropping it when inconvenient
1.155 Some
Republicans' claim that the U.S. Government is unlikely or not obligated
to pay back the borrowings from the Social Security Trust Fund is
downright illegal 1.160
Correcting Social Security's projected shortfall is actually easier now
than it would have been in past decades
1.170
The number of workers per retiree says little or nothing about the
financial robustness of Social Security; yet this metric is frequently
used to mislead people into believing the hoax of a social security
"crisis"
1.175 Some say
that current projections on Social Security solvency underestimate
increases in life-expectancy. However, the data to-date suggests
otherwise 1.180
The progressive nature of how benefits are paid is more than fair
considering it is intended to offset the regressive nature of the social
security tax structure
1.181 Proposals
to index the first social security payment to inflation rather than
wages is nothing more than an underhanded attempt to usurp taxpayer
funds and deny retirees their due 1.190
Even if social security taxes were to be increased to bridge the
manageable gap expected decades hence, workers wages will continue to
increase
1.200
Privatization of Social Security would mean a steep drop in program
efficiency and sharp increases in administrative fees, leading to
significantly lower benefits
1.210
Privatization requires trillions of dollars in additional borrowing (in
addition to benefit cuts) and speculative investment of individual's
funds in the stock market - the makings of another Bush driven disaster
1.220
Privatization proponents often use highly inflated/exaggerated stock
market return projections to push for privatization
1.225 Bush
administration claim that the current social security system is
"inherently unfair" to African Americans is another outright lie
1.230
The Bush privatization proposal, as it stands, would lead to steep
benefit cuts for retirees and poverty for many retirees; younger
workers, women and minorities would be impacted the most
1.240
The Bush privatization proposal, as it stands, would also lead to steep
benefit cuts for non-retired workers drawing insurance for disability or
their families drawing insurance upon the death of the workers
1.250
The Bush privatization proposal will be another exercise in class
warfare - doling out massive corporate welfare to key campaign
contributors in Wall Street at the expense of the poor and middle class
1.260
The Bush privatization proposal could actually reduce economic growth
and thereby further endanger social security
1.270
Bush-style privatization has been tried before in other countries, with
costly or disastrous results
1.280
Private accounts would likely require a new Government bureaucracy
1.290
Private accounts would very likely not protect workers from lower
benefits due to inflation 1.300
While giving individuals "choice" sounds good in theory, one
needs to be sure that individuals are actually able to exercise the
"choice" in a manner that doesn't reduce their benefits; after
all, the vast majority of individual investors are not market experts
and what investors get when they retire will depend on when they
retire
1.400
It is quite likely that the underhanded objective of the Bush
privatization proposal is the eventual phasing out of Social Security
2. Where does your
Senator or Congressman/Congresswoman stand on Social Security? 3. Misleading
Coverage or Fabrications on Social Security by many U.S. media outlets
(including, in some cases, egregious, propagandistic stenography on
behalf of the Bush administration)
4. A sample of the Bush
administration's and Republican politicians' mendacity/misleading on Social Security
4.1 Bush
continues his long-standing tradition of fake "town-hall" meetings
using pre-screened die-hard supporters and scripted exchanges to
deceive public on Social Security
4.2 Bush
administration attempts to use non-partisan government workers (in
Social Security Administration) to push partisan, dishonest
privatization scam onto Americans
4.3 Bush
administration misrepresents quotes from Clinton administration to
push their agenda
4.4 Bush's
crisis-mongering on Social Security is not new. In 1978 he claimed
Social Security would go bust in 10 years -- without privatization.
4.5 Even some
Conservatives/Republicans dismiss the notion of a "crisis" in Social Security
5. Fraudulent Republican
Front Groups spread the fake "crisis" rhetoric and dishonest propaganda
6. Republican misleaders
hope that Americans will be gullible enough to swallow their "framing"
and denials of "privatization"
7. George W. Bush's
flip-flops on Social Security: A Promise Made is a Promise Unkept
APPENDIX:
How should the Democratic Party respond to the fake crisis being
propagated through the media?
ACKNOWLEDGEMENTS The
following websites/individuals were the source of the bulk of the
information catalogued in this page. I would like to thank them in
particular for their extensive coverage on this important topic and
for making their analysis available on the Internet so that all
Americans can get the real facts on social security.
INTRODUCTION:
How the Social Security system is set up in the United States and What
it has Accomplished
The Economic Policy Institute (EPI) has a
very useful "Social
Security: Facts at a Glance".
Kevin
Drum (Political Animal) provided a nice common-man's overview which I am
reproducing here:
Social Security is
funded by payroll taxes. In 1983, Alan Greenspan headed up a
commission that recommended saving Social Security from imminent
doom by raising those payroll taxes to cover expected increases in
Social Security payouts. But there was a twist: Greenspan
recommended raising payroll taxes above what was required to
actually pay current benefits to retirees, with the resulting
surplus used to buy treasury bonds that would be piled up each year
in Social Security's trust fund. And since these bonds were sold to
the trust fund by the federal government, this means that the
federal government got a big chunk of extra money every year for use
in the general fund.
Under this scheme,
payroll taxes were sufficient to cover payouts plus bond purchases
until about 2018
[eRiposte note:
this has been pushed out to 2020 as of 1/31/05]. Then, from 2018 to 2042, when payroll taxes would
no longer be enough to cover payouts, the difference would be made
up by cashing in the bonds in the trust fund. In other words, the
feds would tap into the general fund to give back all the money that
Social Security had handed over between 1983 and 2018. This money
would come from the same place all general fund money comes from:
income taxes.
Still with me? Here's
what this means:
-
Between
1983-2018, this plan calls for payroll taxes to be higher
than they need to be to cover payouts to retirees. However,
because the surplus payroll taxes are handed over to the feds,
it means income taxes are lower than they would otherwise be.
-
Then, between
2018-2042, payroll taxes will be less than they need to
be to pay benefits to retirees. However, the difference will be
made up by higher income taxes, which will be used to pay off
the trust fund bonds.
Payroll taxes are
paid mostly by the middle class and the poor. Income taxes are paid
mostly by the well off.
So: for 35 years the
middle class and the poor pay excess payroll taxes and the well off
get a break on their income taxes. However, for the following 24
years the middle class and the poor get a break on their payroll
taxes and the well off finance it by paying higher income taxes.
Now, this may sound
like a dumb idea to you, but that was the deal. The bottom 80% take
it on the chin for a few decades, followed by a couple of decades in
which the well off get socked.
But suppose — as
conservatives are laying the groundwork for — that Bush decides
the trust fund is a mirage, just a giant IOU from one part of the
government to the other. And as part of his "reform" plan
he proposes a complex scheme that, when stripped to its essentials,
entails doing away with the flim flam of that illusionary trust fund
and the higher income taxes it will require when 2018 finally rolls
around. What would that mean?
It would mean that
the middle class and the poor got suckered into overpaying their
taxes for three decades, and then when the bill came due the well
off ducked out of their end of the bargain.
Of course, that would
be a brazen rip off of the middle class in order to give a break to
the well off and the rich. George Bush would never do something like
that, would he?
Kevin also has
this update:
The key point here is
that payroll taxes are mostly paid by middle and low income workers
— and they've been overpaying for years. Income taxes are mostly
paid by the well off, and the extra money from payroll taxes has
allowed them to underpay for years. In 2018
[eRiposte note:
this has been pushed out to 2020 as of 1/31/05]
this that reverses, so paying
back those bonds isn't just a moral obligation between generations,
it's also a moral obligation between the wealthy and the middle
class.
Here's an interesting addendum. During the editing of this piece the
Monitor's op-ed editor asked me how much income taxes would have to
be raised. There's no precise answer to this, but after a bit of
mental noodling I told her it was in the neighborhood of 1% per year
for 20 years starting in 2018, a total increase of about one-fifth
compared to today's tax rates.
...
Just to be clear, if you pay, say, 15% of your income in income
taxes, a one-fifth increase means you'd pay 18% of your income in
taxes.
Just for additional perspective, here
is what George W. Bush promised in Campaign 2000, something the
U.S. media have completely, completely allowed him to ignore in this
debate:
2/27/01
- [Bush] "...To make
sure the retirement savings of America’s seniors are not
diverted into any other program, my budget protects all $2.6
trillion of the Social Security surplus for Social Security
and for Social Security alone..."
10/3/00
- [Bush]: "...The
revenues exceed the expenses in Social Security to the year
2015, which means all retirees are going to get the promises
made. So for those of you who [Gore] wants to scare into the
voting booth to vote for him, hear me loud and clear: A
promise made will be a promise kept..."
3/22/01
- [Bush] "...For years,
politicians in both parties have dipped into the Trust Fund to
pay for more spending. And I will stop it..."
Paul Starr has a nice review of Social
Security's accomplishments in
The American Prospect:
Superficially, Social
Security resembles traditional employer pensions: Americans pay into
the system during their working years and receive a monthly pension
during retirement. But the differences are fundamental. Social
Security benefits are based on a balancing of two principles: equity
and adequacy. Equity means that what you put in is related to what
you get out; in other words, workers with higher wages, who pay more
into the system, receive higher benefits later on. But under the
principle of adequacy, the Social Security benefit formula overlooks
years of low earnings (for example, when a worker may have been
disabled or unemployed), and it replaces a higher proportion of
earnings for the poor than for the rich. That’s why it’s our most
successful anti-poverty program. In addition, Social Security benefits
are indexed against inflation and protected from the ups and downs of
the economy and financial markets. That’s why the program provides
security for the middle class.
Privatization would do away with the idea of guaranteeing a
minimally adequate income for the elderly who have worked all their
lives. From their own earnings, low-wage workers would be unlikely
to generate enough funds in an individual account to maintain a
decent standard of living in retirement. Even middle-class workers
would be at greater risk of poverty in old age. It’s intrinsic to financial
markets that they yield unequal returns; many of those who did badly
with their individual accounts wouldn’t have enough from other
sources to live on. And markets fluctuate: Some generations would
retire during one of the long downturns that periodically hit the
markets, when their investments would be convertible only into
paltry annuities. Those who lived into their 80s or 90s would be
especially likely to outlast their individual accounts, or, if they
had bought annuities at retirement, see those annuities severely
eroded by inflation.
The elderly used to be an age group with an especially high rate of
poverty. One of the signal achievements of Social Security, hardly
noticed today, is that poverty has fallen dramatically among
Americans over age 65 to just 10 percent, lower than the 12-percent
rate for the population as a whole. For millions of the elderly who
would otherwise be poor, Social Security is the single biggest
source of income, the financial bedrock of their lives. Indirectly,
their working-age children are beneficiaries of the program because
the elderly no longer have to move in with them. People under age 65
also benefit from two other elements of Social Security that often
get forgotten: benefits during long-term disability and survivor benefits
for dependents if a worker dies before retirement. These are also
important anti-poverty programs that don’t carry the stigma of
welfare.
Social Security was never expected to be the sole source of
retirement income for the middle class, who ideally also have
employment-based retirement plans and personal savings. But if one
thinks of these various sources of income as making up a “portfolio”
of retirement assets, Social Security’s distinct value is even
clearer. While other assets typically erode or become exhausted with
advanced age, Social Security pensions keep their value because they
have an annual cost-of-living adjustment. Moreover, as many
employers convert from pension plans with a defined benefit to 401(k)
and other plans with uncertain payouts, workers are already bearing
more risk for retirement. In that context, Social Security provides
a valuable hedge against the financial markets.
But what’s wrong with voluntary and partial privatization -- giving
people the option of holding back 3 percent or 4 percent of their
Social Security contributions to deposit in individual accounts?
Although we haven’t yet seen the details of the Bush plan, these
proposals typically come with sharp reductions in future benefits for
younger workers who opt to remain in the system. These are really
proposals to cut Social Security in which the individual-account
option is an eye-catching decoy. Voluntary in appearance, these
proposals would make Social Security such a bad deal that they’d
trigger a run on the system: Workers, especially those with higher
earnings, would likely not only opt for private accounts but demand
that the entire program become optional.
Social Security works because it is a compact that extends across
income groups. If the affluent leave the system, it would become a
welfare program, shorn of the political clout that comes from
universal participation. The result would be a self-reinforcing
cycle of decline.
Social Security also works because it has been a rolling compact
across generations. For decades, the basis of the program was
entirely pay-as-you-go -- the taxes paid by workers went to pay for
current retirees. When those workers retired, they depended on the
next generation to support Social Security. Then, in 1983, Congress
raised payroll taxes above the level needed for immediate benefits in
order to accumulate savings for the baby-boom generation’s
retirement.
1. Facts on Social
Security and Privatization 1.100
Social Security is Financially in Very Good Shape - it is not going
"bankrupt" and is certainly not facing a "crisis"
Rex Nutting pointed out the following
in
CBS Marketwatch:
Bush: “As a matter of
fact, by the time today's workers who are in their mid-20s begin to
retire, the system will be bankrupt. So if you're 20 years old, in
your mid-20s, and you're beginning to work, I want you to think
about a Social Security system that will be flat bust, bankrupt,
unless the United States Congress has got the willingness to act
now.”
The facts: The Social Security system cannot go "bankrupt," for it
has no creditors. By law, the trustees will continue to pay reduced
benefits even if the trust fund is exhausted. Payroll taxes will
continue to come in and benefits will continue to be paid.
According to the trustees' intermediate economic forecast (neither
doom nor boom), the trust fund will be able to pay about 73 percent
of scheduled benefits in 2042 and about 68 percent of scheduled
benefits in 2078.
Future presidents and Congresses could also choose to fully fund
scheduled retirement benefits from general tax revenue.
As CEPR
says (bold text is eRiposte emphasis):
According to the Social
Security trustees report, the standard basis for analyzing Social
Security, the program can pay all benefits through the year 2042,
with no changes whatsoever. Even after 2042 the program would
always be able to pay retirees a higher benefit (in today's dollars)
than what current retirees receive. The assessment of the non-partisan
Congressional Budget Office is that Social Security is even
stronger. It projects that Social Security can pay all benefits
through the year 2052 with no changes whatsoever. By either measure, Social
Security is more financially sound today than it has been throughout
most of its 69-year history.
Their
accompanying chart ("Source:
SSA, CBO, and authors’ calculations") says it
all.
Princeton economist Paul
Krugman points out the following in his column "Inventing a
Crisis" (bold text is eRiposte emphasis):
There's nothing
strange or mysterious about how Social Security works: it's just a
government program supported by a dedicated tax on payroll earnings,
just as highway maintenance is supported by a dedicated tax on
gasoline.
Right now the
revenues from the payroll tax exceed the amount paid out in
benefits. This is deliberate, the result of a payroll tax increase -
recommended by none other than Alan Greenspan - two decades ago. His
justification at the time for raising a tax that falls mainly on
lower- and middle-income families, even though Ronald Reagan had
just cut the taxes that fall mainly on the very well-off, was that
the extra revenue was needed to build up a trust fund. This
could be drawn on to pay benefits once the baby boomers began to
retire.
The grain of truth in
claims of a Social Security crisis is that this tax increase wasn't
quite big enough. Projections in a recent report by the
Congressional Budget Office (which are probably more realistic than
the very cautious projections of the Social Security Administration)
say that the trust fund will run out in 2052. The system won't
become "bankrupt" at that point; even after the trust fund
is gone, Social Security revenues will cover 81 percent of the
promised benefits. Still, there is a long-run financing problem.
But it's a problem
of modest size. The report finds that extending the life of the
trust fund into the 22nd century, with no change in benefits, would
require additional revenues equal to only 0.54 percent of G.D.P.
That's less than 3 percent of federal spending - less than we're
currently spending in Iraq. And it's only about one-quarter
of the revenue lost each year because of President Bush's tax cuts
- roughly equal to the fraction of those cuts that goes to people
with incomes over $500,000 a year.
Given these numbers,
it's not at all hard to come up with fiscal packages that would
secure the retirement program, with no major changes, for
generations to come.
It's true that the federal
government as a whole faces a very large financial shortfall. That
shortfall, however, has much more to do with tax cuts - cuts
that Mr. Bush nonetheless insists on making permanent - than it does
with Social Security.
But since the politics
of privatization depend on convincing the public that there is a
Social Security crisis, the privatizers have done their best to
invent one.
My favorite example
of their three-card-monte logic goes like this: first, they insist
that the Social Security system's current surplus and the trust fund
it has been accumulating with that surplus are meaningless. Social
Security, they say, isn't really an independent entity - it's just
part of the federal government.
If the trust fund
is meaningless, by the way, that Greenspan-sponsored tax increase in
the 1980's was nothing but an exercise in class warfare: taxes on
working-class Americans went up, taxes on the affluent went down,
and the workers have nothing to show for their sacrifice.
But never mind: the
same people who claim that Social Security isn't an independent
entity when it runs surpluses also insist that late next decade,
when the benefit payments start to exceed the payroll tax receipts,
this will represent a crisis - you see, Social Security has its own
dedicated financing, and therefore must stand on its own.
There's no honest
way anyone can hold both these positions, but very little about the
privatizers' position is honest. They come to bury Social
Security, not to save it. They aren't sincerely concerned about
the possibility that the system will someday fail; they're disturbed
by the system's historic success.
For Social Security
is a government program that works, a demonstration that a modest
amount of taxing and spending can make people's lives better and
more secure. And that's why the right wants to destroy it.
1.100.1
The retirement of the Baby Boomers will not bankrupt Social Security
Mark Weisbrot and Dean Baker of CEPR
write in the Washington Post (via Maxspeak):
"The baby boomers'
retirement will bankrupt Social Security." Far from it. The
first boomers actually begin retiring in 2008. Most of them will be
dead before Social Security faces any financial difficulties.
1.110 As years pass, the
projected so-called "doomsday" on Social Security actually has been
pushing out even farther; plus even at the so-called [fake] "doomsday"
citizens will get 73-81% of the benefits they were promised even if we
did NOTHING today
Kevin Drum (Political Animal) has produced
this useful and excellent chart. His comments on it are provided
below the chart, but be aware that 2042 is NOT
a real "doomsday" either! It is just the date when Social
Security will cover only ~73-81% or so of promised benefits (depending
on
which
estimate you use)!
|
Chart
from Kevin Drum (Political Animal):
Note
that 2042 is NOT a real "doomsday" either! It is
just the date when Social Security will cover only ~73-81% or
so of promised benefits!
(depending on which estimates you use)

|
So Silent E, this
chart's for you: a year-by-year rundown of how much time is left
until the Social Security trustees predict Social Security doom.
Remarkably, no matter how much time goes by, we never seem to
actually get any closer.
There's a very
serious point to be made here. Projections of Social Security
solvency are based on projections of future economic growth, and the
Social Security trustees have been systematically too pessimistic
about the economy for the past decade. What's more, there are good
reasons to think that they're probably still being overly
pessimistic.
If that's the case,
then it's probable that the system as a whole is solvent forever and
that we won't even have to touch the trust fund for another 40 years
— if then. And frankly, a "crisis" that's at least 40
years off and might very well never occur at all just isn't
something we should be spending a lot of time on right now.
Predicting economic growth within a few tenths of a point 40 years
in the future is a mug's game, and trying to justify radical changes
on such speculation is foolish.
Social Security is
safer without private accounts than it is with them. We should leave
it alone and convene again in ten years to see how things are going.
Rex Nutting pointed out the following
in
CBS Marketwatch:
Bush: "Most younger
people in America think they'll never see a dime."
The facts: Social Security says younger people will see a lot more
than a dime. Their retirement benefits–even under a "flat-bust"
system–will be significantly higher than today's benefits in real
terms.
For low-income Americans, currently scheduled benefits for those who
retire in 2080 are $19,906 per year in 2004 dollars. If Social
Security can pay only 68 percent of those benefits, that would be
$13,536 per year, compared with benefits of $8,804 for low-income
retirees who retired last year.
For the highest earners, Social Security is currently promising
$53,411 per year for those who retire in 2080 (or $36,319 per year
if Social Security can pay only 68 percent). Current maximum
benefits are $21,891 per year for those who retired last year.
Roger Lowenstein also mentions this in
the
New York Times magazine (bold text is eRiposte emphasis):
The debate over
Social Security's solvency is really two debates. The first is over
how long the trust fund will last. The law requires the Social
Security Administration to estimate its financial condition for 75
years into the future, and the agency's conclusions depend on the
assumptions it makes about what America will look like decades hence
-- how much people will earn, how large their families will be, how
long they will live.
Politicians and other commentators tend to speak about these
long-range trends, or at least about Social Security's finances,
with an air of precision. This is almost amusing, since few
economists can predict the swings in the federal budget even a year
in advance. Joshua Bolten, head of Bush's Office of Management and
Budget, said of Social Security last month, ''The one thing I can
say for sure is that if left unattended, the system will be unable
to make good on its promises.'' But the Social Security
Administration itself pretends to no such certainty. Its actuaries
(about 40 are on staff) frankly admit that the level of, say,
immigration in 2020, or of wages in 2040, is impossible to forecast.
''The only thing we are sure of is that it won't happen precisely as
we project,'' says Stephen Goss, the chief actuary at the agency.
And the trustees' annual report, which is based on the actuaries'
analysis, takes pains to say that it is not making a prediction. It
makes a projection -- three different ones, actually -- that amount
to informed but very rough guesses. The agency's best guess, labeled
its ''intermediate'' case, is that the system will exhaust its
reserves in 2042. At that point, as payroll taxes continue to roll
in, it would be able to pay just over 70 percent of scheduled
benefits. That would leave a substantial deficit, but one that
Congress could easily avert if it were to act now when the projected
problem is more than a generation away.
What's more, there is a strong case to be made that the agency is
erring on the side of being overly pessimistic. If its more
optimistic projection turns out to be correct, then there will be no
need for any benefit cuts or payroll-tax increases over the full 75
years.
No one can definitively predict that outcome, either, of course, but
David Langer, an independent actuary who made a study of Social
Security's previous projections compared with the actual results in
2003, thinks the ''optimistic'' case is its most accurate. Over a
recent 10-year span, the trustees' intermediate guesses turned out
to be quite pessimistic. Its optimistic guesses were dead on, and
its pessimistic case -- sort of a doomsday situation -- was wildly
inaccurate.
And, contrary to widespread belief, recent demographic trends
have been modestly better (from an actuary's gloomy standpoint) than
anticipated. For instance, longevity hasn't increased as much as
expected. Partly as a result, since 1997 the agency has pushed back,
by 13 years, the date at which it projects its reserves will be
exhausted. In other words, as the cries of impending doom started to
crescendo, the guardians of the system have grown more optimistic.
1.120 The
long-standing myth of a social security "crisis" is based on the projection that the
economy and productivity will grow much slower in the future than it has
in the past (while, incidentally, privatization is simultaneously pushed
using the opposing claim that stock market returns will somehow, in real
terms, be much better in the future than in the past!)
Bob
Somerby at The Daily Howler points out one of those occasional
columns from George Will that is founded on some degree of honesty:
How gloomy are the
projections of the SS trustees—the ones which Kerry and Kennedy
cited? You don’t have to be a wild-eyed liberal to know their
assumptions are quite pessimistic. For example, here’s George Will
in the Washington Post, after saying that SS faces no “crisis:”
WILL (1/20/05):
What constitutes a crisis is a matter of opinion, and everyone
is entitled to his or her own. But not to his or her own facts.
Here are some:
Social Security outlays may exceed revenue by 2018—that date
almost certainly will recede further into the future, as it
has before, as the economy outperforms expectations. After that,
the government bonds that Social Security surpluses have bought
(money used to fund the government) will be entirely redeemed,
as the Social Security Administration calculates, by 2042. Or
2052, according to the Congressional Budget Office, using
different assumptions about the rate of economic growth....
Some people warning of a distant Social Security crisis
postulate 75 years of 1.8 percent annual growth. But if
America has 75 such sluggish years, Social Security's insolvency
will hardly be the nation's largest problem.
But the figures Will
cites in that last passage are (allowing for a slight apparent
mistake) the figures of the SS trustees! In other words, even Will
is willing to say that the SS projections are excessively gloomy.
(He also says the trustees’ projection about 2018 is “almost
certainly” wrong.) But Kerry and Kennedy? Good grief! They run onto
network TV, eager to use unreliable figures which cut against
their party’s position.
UC-Berkeley
economist Brad DeLong has this
to say (bold text, except the header, is eRiposte emphasis):
Dean Baker Gives Us
All a Social Security Test
He writes, apropos of
Social Security:
MaxSpeak,
You Listen!: DEAN RESPONDS TO SAMWICK: I have a test of my own
that I have been trying to get economists to take (thus far
unsuccessfully), in which I ask proponents of privatization to
write down the set of dividend yields and capital gains that will
give them the 6.5-7.0 percent real stock returns that they
conventionally assume. Such returns were possible in the past
because the price to earnings (PE) ratios have historically been
much lower and profit growth was much faster. The price to
earnings ratio averaged about 14.5 to 1 over the last seventy
years, compared to more than 20 to 1 today. This is important,
because if 60 percent of profits are paid out as dividends (or
used for share buybacks), this gets you a dividend yield of over
4.0 percent with a PE ratio of 14.5 to one. It gets you just 3.0
percent with a PE ratio of 20 to 1, and of course less when the PE
ratio is higher.
Let's see... Assume a
payout ratio of 60%. Earnings yield of 5% per year... That gives you
a dividend yield of 3% per year... That means that the profits of
currently existing and traded companies (not aggregate
profits!) have to grow at 3.5%-4% per year... That means that the
economy as a whole has to grow at 4.5%-5% per year forever...
That's much higher than the Social Security actuaries' long-run
growth assumption, which heads for productivity growth of about 1%
per year and very low population growth by 2050...
In other words,
the stock market can attain its 6-7% per year real payoff only if
the macroeconomic news in the future is much better than Social
Security is projecting, in which case there's no Social Security
financing problem at all.
What grade do I get?
Matthew Yglesias at The American Prospect
also writes about this here:
The $11 trillion
long-term Social Security deficit we've been hearing so much about
lately -- and that pundits have been screaming about since, quite
literally, I was one year old -- are based on a prediction that the
economy will do significantly worse in the future than it has in the
past. If this is right -- which it may be -- then the stock
market will do worse, too, and solve nothing. Changing the
underlying assumptions, which is what the privatizers are really
doing, solves the problem on its own without any changes to policy.
Part of the Social
Security Trustees' pessimism is warranted and based on the idea that
population growth will slow down in the future. Demographic
projections are never perfect, but demographers have gotten pretty
good at making estimates, so this probably will happen.
Much less
reasonable are the Trustees' assumptions about productivity growth.
They say that after growing 3.8 percent in 2002, 3.4 percent in
2003, and 2.7 percent in 2004, productivity growth will crash to 1.8
percent in 2005 and then slowly decelerate to 1.6 percent by 2012.
After that, growth will average 1.6 percent until the end of time.
The historical
table at the top of the Web page on which this prediction is to
be found shows that productivity growth averaged 1.7625 percent from
1960 to 2000. Since 2000, annual productivity growth has averaged
2.75 percent. The postwar years up to 1960, not included on the
chart, saw faster growth than did the 1960-2000 period.
The important thing
to note is not that the Trustees are necessarily wrong but, simply,
that it's silly to pretend to think a panel of government
accountants can predict economic events in the year 2037, much less
offer a full 75 projection of the future course of the American
economy. The trustees might be right: An aging society might prove
less innovative and less productive than the America we've come to
know. If this is true, Social Security is going to have a problem.
So will the stock market. So will the Defense Department. So will
just about every aspect of the American government and economy. And
if that happens, we'll have to figure out how to respond, ideally by
coming up with policies that will boost productivity and get us out
of the jam. If we can't do that, we're all going to need to tighten
our collective belts -- not just on retirement security, but on all
aspects of our lives -- compared with the rapid growth we've learned
to expect.
In the meanwhile, we
can focus on problems that we do have: a war on terrorism, a large
general fund deficit, an inefficient health care system, and a
decaying infrastructure. This is how we deal with other areas of
public policy. We don't look at the growth in defense spending over
the past few years, project it forward, compare it with the tax
revenue we can expect under dubious economic assumption, and worry
that we may go bankrupt in 2043. Instead, we ask if the size of our
military is suited to our present defense needs, and we see if we
can't mobilize the resources we need. If we can get by with spending
less in the future, we'll spend less.
Kevin Drum (Political Animal) went a step
further to point
out how the future of Social Security would look like with more
reasonable assumptions - using the Social Security Administration's own
data/chart. Here is his summary and the accompanying chart from SSA.
SMOKE AND MIRRORS, PART 2....In
my
previous post I mentioned in passing that it's hard to come up with
future projections in which (a) economic growth is bad enough
that Social Security goes bust in 2042 but (b) economic growth is good
enough that private accounts have investment returns of 7% annually —
and thus are lucrative enough to save Social Security. This point is
worth expanding on a bit.
Every year the Social Security
trustees produce a
75-year
financial estimate. To do this, they make estimates of
population growth, life expectancy, economic performance, and so
forth, and then add them all up into an overall estimate of
long-term solvency. In fact, they make three estimates (see chart on
right), and the one you hear about in the news is the middle one, or
"intermediate projection." In that projection, Social
Security starts running a deficit in 2042. The key assumptions in
the intermediate projection from 2015 forward are the following:
-
Labor force growth: 0.2% per
year.
-
Productivity growth: 1.6% per
year.
-
Average hours worked: no change.
Which leads to the following overall
estimate:
This growth is lower than we're used
to, but that's because GDP growth = population growth + productivity
growth. Since population growth is slowing down, so will GDP growth.
Still, what if you assume that things
will be a little more robust than this? If you project GDP growth of
around 2.6% per year, you end up with Estimate I, and in that
scenario Social Security never runs out of money. In fact, if
you project GDP growth just a few tenths higher than 1.8%, Social
Security stays solvent for the next century.
In other words, if GDP growth
averages, say, 2.2% over the next 75 years, Social Security is in
fine shape and we don't have to do anything. We only need to
"fix" it with private accounts if GDP growth is less than
that.
So here's the puzzler: for private
accounts to be worthwhile, they need to have long-term annual
returns of at least 5%, and 6-7% is the number most advocates use.
But are there any plausible scenarios in which long-term real GDP
growth is less than 2% but long-term real returns (capital
gains plus dividends) on stock portfolios are well over 5%?
Privatization enthusiasts are
encouraged to leave their answers in comments.
[From
SSA.gov report]
Figure II.D7.--Long-Range OASDI
Trust Fund Ratios Under Alternative Assumptions
[Assets
as a percentage of annual cost]

|
Kevin has a
follow-up post in which he points out that the projection
labeled I in the chart above is actually quite believable based on
historical results.
When the Social
Security trustees project the future, they actually make three
projections: pessimistic, optimistic, and intermediate. The
intermediate one gets all the press, but which one has
historically turned out to be most accurate?
Roger Lowenstein tells us today in the New York Times
Magazine:
David Langer,
an independent actuary who made a study of Social Security's
previous projections compared with the actual results in
2003, thinks the ''optimistic'' case is its most accurate.
Over a recent 10-year span, the trustees' intermediate
guesses turned out to be quite pessimistic. Its optimistic
guesses were dead on, and its pessimistic case — sort of a
doomsday situation — was wildly inaccurate.
In the
"optimistic" case, of course, Social Security is solvent forever
even with no changes — as the chart on the right shows
[eRiposte note: the
chart that Kevin is referring to is the one on top and by
"optimistic" case he is referring to the line labeled "I"].
(Note: the chart illustrates the projected health of the trust
fund under all three scenarios. When the blue lines hit zero,
the trust fund is exhausted. Click the chart to read the
underlying details.)
1.130 What is really in
crisis is the Federal Budget *excluding* Social Security - the Bush
administration doesn't want people to know that massive Social Security
surpluses are being used to finance the record deficits due to Bush's
massive tax cuts for the super-rich and out-of-control spending on Iraq
and GOP pet projects (contrary to Bush's 2000 campaign promises)
Brad
DeLong's chart provides a visual picture of what is going on:
1.131 The
programs that are really raising the prospects of bankruptcy and
"crisis" (in a shorter time span) are President Bush's tax cuts and
the Big Pharma Welfare Bill, aka the Medicare Bill
Josh Marshall at Talkingpointsmemo offers some perspective (bold
text is eRiposte emphasis):
Here is one of many
comparisons and observations we'll be making to provide some
counterweight to the White House's efforts to deceive the American
people about Social Security.
The Social Security
Trustees estimate that over the next 75 years the program faces a
budget shortfall of $3.7 trillion.
As we've noted previously and will again, the Trustees use a very
pessimistic estimate of future economic growth to arrive at that
figure. But, for the moment, let's stipulate to that amount.
$3.7 trillion is a lot of money.
But how much will the president's Medicare drug benefit plan cost
over the next 75 years?
$8.1 trillion, say the Trustees of that program.
And over the next 75 years how much will the president's 2001 and
2003 tax cuts cost if made permanent, as the president wants?
$11.6 trillion.
So you add that up and you get $3.7 trillion we need to cover Social
Security's shortfall and $19.7 trillion we need just to cover the
costs of the two major domestic policy initiatives of the
president's first term.
And yet Social Security, says the president, is in crisis and
destined to chew through the rest of the federal budget.
(These statistics are noted in this
budgeting summary from the Center on Budget and Policy
Priorities.)
I would submit to you that in any reasonable universe this simple
comparison shatters the president's credibility on fiscal 'icebergs'
and spending crises. And yet these basic facts seem to garner little
notice.
That is because, in the last couple decades, in the culture of
Washington -- particularly among the elite commentators and
reporters (just watch Meet the Press) -- presuming that Social
Security is financially unviable has become an ready shorthand for
public policy seriousness, much as many use a basic knowledge of
imported wines or a familiarity with classical music to signal
refinement.
This is something the president is exploiting. And the defenders of
Social Security must find ways to overcome it.
Angry Bear (an economist)
offers this:
"Off-budget" means
social security -- it's currently running a surplus of around 1.5%
of GDP or over $150 billion/year. Hardly a crisis, that. The general
fund, however, is running a deficit in the neighborhood of 5% of
GDP. That's about $600b for 2004 (based on these
somewhat dated numbers.) Now that sounds a lot more like a
crisis. Of course, fixing that will require spending cuts, tax
hikes, or both, so don't hold your breath.
By
comparison to the malignancies in the general fund, Social Security
looks quite benign indeed (this figure is based on the trustees'
intermediate projections for economic performance). Social Security
spending is barely projected to rise above 5% of GDP. Of course,
that is a lot of money. But we would all be better served in the
short to medium run by fixing the massive general fund deficit and
Medicare. (And no,
this monstrosity does not count as fixing Medicare; quite the
opposite in fact.)
1.132
Claims that Social Security has an "unfunded liability" of "$11
trillion" are outright deception
Dean Baker, among others, has pointed this
out in
The American Prospect:
But the proponents of
the crisis story have been largely successful in spreading fear.
Part of this success is due to the use of deceptive language in
framing the issue. The promoters of the crisis routinely speak of an
$11 trillion “unfunded liability” for Social Security. But most of
the people who hear the $11 trillion figure or use it (including
reporters) probably have no idea what it means.
The $11 trillion is obtained by projecting Social Security taxes and
spending for the infinite future. The gap between projected spending
and taxes for all time is then summed up (using a 3-percent
real-discount rate) to get a projection of $11 trillion of debt.
However, more than two-thirds of this projected debt is due to
spending beyond the 75-year planning period for Social Security.
This means that the debt is not something that we are imposing on
our children or grandchildren. Rather, it is a debt that we are
projecting that our great-grandchildren would impose on their
grandchildren -- assuming pessimistic economic projections.
The basic story is that life expectancies are projected to increase
through time. This raises the cost of the program through time. If
taxes are never raised and benefits are never reduced, the shortfall
would eventually be very large.
But serious people don’t worry about designing Social Security for
the 22nd century. (The secret here is that we don’t actually get to
design Social Security for the 22nd century anyhow -- the people who
are alive in 50, 60, and 70 years will design the program in a way
that makes sense to them. They will not care at all about what we
thought was a good system in 2005.)
If we just confine ourselves to the already lengthy 75-year planning
period, the projected shortfall comes to $3 trillion. This may still
sound very large. However, the Social Security trustees calculate
that this shortfall is 0.7 percent of national income over the
planning period. The CBO projects an even smaller number, just 0.4
percent of income over the next 75 years.
By comparison, the increase in annual defense spending since 2001
has been more than 1 percent of the gross domestic product, twice
the size of the Social Security shortfall projected by the CBO. And
Bush’s tax increases equal about 2 percent of the GDP. In fact,
rolling back Bush’s tax cuts on the very wealthiest would raise
sufficient revenue to cover the shortfall for 75 years.
Incidentally it is the Bush
administration that is spreading this garbage. As Josh Marshall points
out at
Talkingpointsmemo:
If you have a blog
and can't think of a topic to dig into today, try reading through
this
online Q&A the White House just held with
Chuck Blahous, President Bush's Social Security phase-out maven.
Listen to this exchange with "Stuart" from New Jersey (italics
added) ...
Stuart,
from New Jersey writes:
How can we make the transition to invester owned social security
without incurring 2 trillion in dept to fund current citizans
recieving assistance?
Chuck Blahous
As long as we have a Social Security system, there will be costs
no matter what we do. The Social Security Trustees have told us
the cost of maintaining the current system without change. It
is approximately $10.4 trillion, in present value. That is the
extra revenue that the system would need to have on hand today,
above and beyond all payroll taxes, to meet the gap between
taxes and promised benefits.
A number of comprehensive proposals have been put forward, some
by Members of Congress, others by the President’s bipartisan
Commission to Strengthen Social Security. President Bush has not
selected a specific reform proposal. Several of these proposals
would fix the system permanently while considerably reducing the
cost of sustaining the system under current law.
The current system would begin its “transition” from the black
to the red in 2018. From that date onward, under current law,
the current system would face a deficit that is growing worse
with each following year. The President has proposed that we
head off this event by beginning to invest now in the future of
Social Security. We can do this for far less than the $10
trillion cost of sustaining the current system.
Wow, Social Security
Administration needs ten trillion dollars on hand today and it's got
nuthin'. That really is a crisis!
Infinity? Today? But, hey, who's counting?
Does Blahous not think anybody's going to read this stuff?
Josh has
this note as well:
The Times
states the facts correctly: "Starting last year, as the
groundwork was being set for the emerging debate, the Social
Security trustees took the liberty of projecting the system's
solvency over infinity, rather than sticking to the traditional
75-year time horizon. That world-without-end assumption generates
the scary $10 trillion estimate, and with it, Mr. Bush's putative
rationale for dismantling Social Security in favor of a system
centered on private savings accounts."
The whole
editorial is well worth your reading.
What follows also tells an important part of the story ...
The American
Academy of Actuaries, the profession's premier trade
association, objected to the change. In a letter to the
trustees, the actuaries wrote that infinite projections provide
"little if any useful information about the program's long-range
finances and indeed are likely to mislead any [nonexpert] into
believing that the program is in far worse financial condition
than is actually indicated."
As it often does with dissenting professional opinion, the
administration is ignoring the actuaries. But that doesn't alter
the facts or common sense. If the $10 trillion figure is
essentially bogus, so is the claim that Social Security is in
crisis. The assertion that doing nothing would be costlier than
enacting a privatization plan also turns out to be wrong, by the
estimates of Congress's own budget agency.
I wouldn't imagine
that the American Academy of Actuaries annual convention would be
the one you'd want to go to for the most rockin' parties. But
presumably this is a topic they know something about.
1.140 By the
definition of "bankruptcy" used by privatization proponents,
our military is "bankrupt" TODAY (not in 2042 or 2052) - why
are there no calls to "reform" the military? Medicare
is far more of a problem - how come reform advocates are not spending
sleepless nights proposing solutions to that?
Matthew
Yglesias notes this
at TAPPED (bold text is eRiposte emphasis):
WHEN IS A BANKRUPTCY
NOT A BANKRUPTCY?
I was groping
toward this analogy myself, but Daniel Mitchell,
professor of management and public policy at UCLA (via
Mark Kleiman) has the
numbers:
Those seeking radical
restructuring of Social Security use the word
"bankruptcy" to mean that the day will come when the
program's trust fund will be exhausted and its earmarked tax
revenue will be insufficient to pay all entitlements. By that
definition, the military is bankrupt today. We spend about $500
billion per year on the military, including veterans' payments.
Yet the Pentagon has no earmarked tax revenue and no trust fund.
If our indefinite entitlement to national defense were treated
analogously to Social Security, the Pentagon's "unfunded
liability" would be on the order of $15 trillion to $20
trillion — that's trillion! Yet no calls for radical
restructuring of the "bankrupt" military are heard.
There are two points to
be made here. One is that the non–Social Security budget deficit
is a much more pressing concern than is Social Security's projected
financial shortfall, which may not even arise depending on how
things go in the future. The other is that government programs --
and, indeed, whole governments -- don't go "bankrupt" when
expenditures exceed revenues. If promised benefits do wind up
exceeding payroll tax receipts at some point in the future, the
government can just run a deficit for a year or two while the
politicians of that era decide what to do.
Kevin Drum provides an excellent
comparison of Social Security and Medicare here.
Bob Somerby has more at The
Daily Howler:
...almost everyone
agrees that, in some sense or other, Social Security faces future
revenue problems. But should we refer to this as “bankruptcy?”
For the record, this situation doesn’t “sound a lot like
bankruptcy” to us, the judgment our reader reports. When John
Smith can’t afford to pay his full rent, people don’t normally
say that he’s bankrupt. They say he should move to a cheaper
apartment, or that he should take on a second job, or that he should
borrow some money or sell his slick car. So no—English being our
mother tongue, we don’t feel inclined to say that SS is
going “bankrupt,” “broke” or “belly-up.” We think those
formulations are semantic propaganda—carefully chosen formulations
designed to mislead, not inform.
And make no
mistake—these locutions have misled the public. For the
most obvious example, consider what our e-mailer says about his own
past understanding. “I have long assumed that ‘Social Security
won't be there for me,’” he writes. “It appears that I was
wrong.” But why did our reader ever believe that Soc Sec
“wouldn’t be there” for him? Most likely, he reached this
conclusion because he kept hearing people say that the system was
going “bankrupt” (“belly-up”). These locutions are vastly
misleading, as the e-mailer’s experience shows. Most likely,
that’s exactly why the locutions were chosen as conservative
talking-points.
Over the course of
the past several decades, the RNC has become quite adept at
formulating poll-tested bits of language—locutions baldly designed
to mislead. In their 1996 book, “Tell Newt to Shut Up,”
David Maraniss and Michael Weisskopf wrote a brilliant chapter on
the mid-90s Medicare debate, describing how the GOP developed the
language that became their great banner: No one is cutting
Medicare; we’re just slowing the rate at which the program will
grow. This formulation was vastly misleading; along with
Standard Data the party used in its sales pitch, many voters were
led to believe that the GOP plan would produce a vast increase in
Medicare services, a belief which was pleasing but surely
mistaken. The locutions were slick—and vastly misleading. For a
full discussion of this episode, you know what to do: Just
click here.
The “bankruptcy”
metaphor serves the same purpose. Why must this locution be
challenged? Because it has led a generation of Americans to believe
things that are plainly false—to believe that Social Security
“won’t be there” when they retire, for example. In his e-mail,
our reader says he realizes now that he was wrong in that belief; 81
percent of promised benefits isn’t nothing, after all. But why do
so many younger Americans believe SS “won’t be there” for
them? The “bankruptcy” metaphor has vastly misled them. For
ourselves, we’ll assume that’s why the locution was chosen. But
at any rate, the locution does mislead, and that’s why it should
be challenged at every turn in this debate.
1.150 The
Social Security trust fund is not a "myth"; dishonest privatization
proponents use the "myth" term when convenient, while dropping it when
inconvenient
Mark Weisbrot and Dean Baker of CEPR
write in the Washington Post (via Maxspeak):
"That
money's all been spent": When anyone lends money to the federal
government by buying a bond, the government spends it. But the
government still pays interest and repays what it borrowed. That
goes for the Social Security trust fund. Social Security has been
running annual surpluses (now at more than $150 billion) since 1983.
By law it must invest that surplus in U.S. Treasury obligations.
"But the trust fund is only holding I.O.U.'s -- just pieces of
paper!" Another canard: All bonds are I.O.U.'s. Those "pieces of
paper" are backed by the full faith and credit of the U.S.
government, which has never, ever defaulted on its bonds.
Bob Somerby at the Daily
Howler says:
Pundits love to wring
their hands about those worthless IOUs in the trust fund. But please
note—an “IOU” is all anyone gets when he loans money to the
government! When Ross Perot buys government bonds, he expects that
he’ll be repaid on schedule. But all he has is the government’s
promise—a promise that becomes a “worthless IOU” when we start
talking about SS. Everyone who loans money to the government
receives a promise to be repaid. And no one calls this a
“worthless IOU”—until we start using the slick-slippery spins
cooked up to bring down this key system.
As Somerby also
notes here:
But,
just like the other Scary Scripts, this one is pure propaganda. Over
the past twenty years, Congress has sold bonds to (borrowed money
from) the Soc Sec trustees, as it has done with many other
individuals and entities. Over that time, Congress has borrowed
money from (sold bonds to) many sources—and everyone always
gets paid back. If Congress hadn't borrowed the money from the SS
trustees, they would just have borrowed it from someone else—and
those parties would have been paid back too, just as everyone gets
paid back, just as the trustees will get paid back. This
"IOU" story is Pure Grade A Bullroar, but it's been
recited about ten million times. Here’s how Baker and Weisbrot
approach it:
BAKER/WEISBROT (page
29): What does it mean, then, to say that Social Security must
be cut rather than that the government must meet its obligations
to the trust fund? When government bonds held by Bill Gates or
Ross Perot or any other wealthy individual or pension fund mature,
nobody proposes that the creditors should not be paid their
principle. Yet the reformers insist that the 144 million Americans
who loan money to the U.S. Treasury from the Social Security trust
fund somehow do not have the same claim.
Over the past two
decades, the government has borrowed large sums from many sources.
Everybody gets paid back. But when they think about paying back the
SS trustees, scripted pundits gasp and gag, suggesting that it just
can’t be done. Perot and Gates? All they have is IOUs too! But
no one suggests they shouldn’t be paid. It’s just the same with
these other “IOUs”—the ones the trustees are holding.
The Russerts have
peddled a fake tale for years—but citizens need the full range
of facts.
And
here:
In U. S. News, Jodie
Allen laid out a bit of the logic of these gonzo claims about the
“mythical” trust fund. “[M]uch of the current sound and fury
signifies less than reigning politicians may want you to believe,”
she wrote. Then, remarkably, this:
ALLEN (1/24/05):
Take, for starters, the myth of the "mythical trust funds."...
"The trust fund is just an accounting exercise," warned
Congressional Budget Office Director Douglas Holtz-Eakin
recently, echoing similar cries. In fact, the extra money has
been used to cover other federal spending—things like defense
and education. All the trust funds hold is a bunch of treasury
bonds. IOUs. Mere paper.
This is true. But,
and I don't want to disillusion you too much, the same is also
true of that account you have at your local bank. No, there is
no lockbox full of gold bars in the bank's repository with your
name on it—just the bank's promise to pay up. In fact, hold on
to your hat, the whole modern economy runs on mere paper...
Duh! And let’s make
that one additional point. If the trustees had kept that trillion
bucks in a lockbox—if they had buried the money out on the mall—then
Congress would have been forced to borrow the same amount from
somebody else! In short, the government would have carried the same
amount of debt. Bury the money in a gold box? Loan the money to the
feds? It doesn’t make a lick of difference. Democrats need to learn
to lay these points out—and they need to learn to go after sophists
like Moore when they do so. Unless, of course, they just don’t care,
which often looks like their problem.
Roger Lowenstein writes the following in
the
New York Times magazine:
The second debate
concerning solvency is over whether the securities in the trust fund
will be honored or whether, in Moore's pointed imagery, the fund
will resemble a bank ''after it's been robbed by Bonnie and Clyde.''
This seems an odd preoccupation. Social Security does not own junk
bonds or third-world debt; it invests in U.S. Treasuries, considered
the safest investment on the planet. Since 1970 there have been 11
years in which Social Security has operated at a deficit; each time,
it redeemed bonds from the trust fund without a fuss. Goss, the
agency's actuary, says he has no doubt it will be able to do so
again. ''Absolutely,'' he said when asked if the trust-fund bonds
are sound.
This isn't what some conservatives have said. Paul O'Neill, the
former treasury secretary, went so far as to say that Social
Security has no assets. In anti-Social Security literature, the ''no
assets'' contention isn't even debated; it's treated as gospel.
According to Michael Tanner, head of the Cato Institute Project on
Social Security Choice, the agency's pauperism has turned America's
seniors into ''supplicants'': after working and paying taxes their
entire lives, ''they earn the privilege of going hat in hand to the
government and hoping that politicians decide to give them some
money for retirement.'' The implication is that the money isn't
there: graybeards will have to beg for it.
Cato, a libertarian policy center founded in the late 1970's, has
been arguing for 25 years that Social Security is on the verge of
crisis. In a recent position paper, Tanner wrote that Social
Security faces a horrendous unfinanced liability of $26 trillion
over 75 years. In a footnote, he cited the 2003 trustees' annual
report. Actually, the trustees' intermediate projection is for a
deficit, over 75 years, of $3.7 trillion. Though that is a lot of
money, it could be covered by an immediate surcharge to the payroll
tax of less than two percentage points, or by various combinations
of tax hikes and benefit cuts, each of them quite manageable. But
$26 trillion is too big a hole to fix. When I asked Tanner about the
footnote, he admitted that the trustees didn't actually say $26
trillion; Tanner derived the figure by counting the cash-flow
deficits that the trustees project from 2019 on out. In other words,
he ignores the next 15 years or so, during which time Social
Security will be running a surplus. And he assumes that the assets
in the trust fund, which should be accruing interest into the
2040's, won't exist, either. Tanner counts only the bad years and
only the bad numbers. Another doomsayer, former Republican
Representative John Kasich, pegged the Social Security deficit at
$120 trillion in a recent op-ed -- some 32 times the agency's
figure. (Kasich toted up annual deficits in nominal -- not
inflation-adjusted -- dollars for every year through 2080, by which
time a hamburger could cost $40.)
Such hyperbolic claims aside, there is a serious issue at the heart
of what worries critics. It isn't that the trust fund is broken;
it's that the existence of the fund is seducing the government to
spend more than it otherwise would, thus brooking larger deficits in
the future. Since Social Security lends its surplus to the Treasury
(that's what it means to be investing in Treasuries), it is parking
its surplus cash with the government. And just as lending money to a
child outside a candy store may impose an impossible temptation, so
the government may feel tempted while it holds onto Social
Security's purse.
Ideally, Congress would recognize that the surplus is only temporary
and would, therefore, take pains that the money lent to it is
properly saved -- that is, that it run a surplus. But the government
is operating at a deficit. So you must conclude that rather than
saving Social Security's surplus, the government has been spending
it -- on the military, education, tax cuts. In only 15 years, the
government will have to start repaying its debt to Social Security.
It will be able to do so. If need be, it will borrow, as it has
borrowed for many purposes since 1776. The amount of borrowing,
which could very gradually scale up to 1 or 2 percent of the
country's gross domestic product, will be far smaller than the
present federal deficit, which is just under 4 percent of G.D.P. But
to avoid layering one deficit atop another, the government needs to
exercise discipline -- to not overindulge in candy -- in the years
when Social Security is running a surplus.
Kevin
Drum at Washington Monthly also commented on this hoax being pushed
on to Americans:
REAL MONEY....One
of the most common conservative critiques of Social Security is that
the Social Security trust fund is a myth. Since it consists solely
of treasury bonds, it's nothing more than a promise from one branch
of the government to another. It's not real money, it's just an IOU.
But that's a serious
misunderstanding of what money is. It's a promise. After all, you
don't think those dollar bills in your wallet or the bits and bytes
in your bank account have any real value, do you? In fact, their
only value is that they're a promise: a promise that you can
exchange them at some future time for concrete goods and services.
When people no longer believe in that promise (think Weimar
Germany), money no longer has any value.
The trust fund works
the same way: it's a promise to the taxpayers who filled it up that
at some later date it can be used to buy goods and services. The
mechanism for honoring this promise — that is, ensuring that at
some point in the future the original investors get the goods and
services they were promised — is to collect taxes and turn the
resulting revenue over to retirees. This promise can no more be
broken than the promise that the United States government accepts
dollar bills as legal tender.
Still not
convinced? Try this instead: how about if we sell off the current
contents of the trust fund to outside investors? They think
it's real, and they'd be happy to buy those bonds — in an orderly
way, of course. After that was done and the money was reinvested,
the trust fund would be full of stocks and corporate bonds — and
voila, suddenly everyone would magically agree that it's real money.
So yes, the trust
fund is real. It's a promise from the United States government
backed up by its taxing authority, just like real money, and it's
accepted by outside investors, just like real money. How much more
real can it get?
Economist Paul Krugman has written
eloquently on the dishonesty of privatization proponents in
The Economist's Voice:
But the privatizers
won’t take yes for an answer when it comes to the sustainability of
Social Security. Their answer to the pretty good numbers is to say
that the trust fund is meaningless, because it’s invested in U.S.
government bonds. They aren’t really saying that government bonds
are worthless; their point is that the whole notion of a separate
budget for Social Security is a fiction. And if that’s true, the
idea that one part of the government can have a positive trust fund
while the government as a whole is in debt does become strange.
But there are two
problems with their position.
The lesser problem is
that if you say that there is no link between the payroll tax and
future Social Security benefits — which is what denying the reality
of the trust fund amounts to — then Greenspan and company pulled a
fast one back in the 1980s: they sold a regressive tax switch,
raising taxes on workers while cutting them on the wealthy, on false
pretenses. More broadly, we’re breaking a major promise if we now,
after 20 years of high payroll taxes to pay for Social Security’s
future, declare that it was all a little joke on the public.
The bigger problem
for those who want to see a crisis in Social Security’s future is
this: if Social Security is just part of the federal budget, with no
budget or trust fund of its own, then, well, it’s just part of the
federal budget: there can’t be a Social Security crisis. All you can
have is a general budget crisis. Rising Social Secu |