The Presidentís embrace of progressive price indexing for Social Security is just one more clever attempt to kill it. Converting the most successful government program in history into a welfare plan for the poor, practically guarantees it will lose political support and eventually get picked off.
As usual, thereís a lot of misinformation coming out of the White House and the press isnít doing much to set the record straight. Before we allow Mr. Bush to destroy Social Security in the name of saving it, letís at least get the facts right.
Fact: The Social Security System is not "going broke" and it wonít be "flat busted" in 2041. At that point, even if we do nothing, the system will still be able to deliver benefits equal to at least 74 cents on the dollar of those promised today. Thatís a long way from being broke.
Fact: Thereís no solvency crisis; under realistic economic assumptions, the Social Security System actually generates a surplus for as far out as we can forecast. The Social Security Trustees use extremely gloomy economic assumptions to come up with a shortfall. Under their intermediate forecast (the one Bush relies on) productivity would have to fall, immigration would have to fall, and economic growth would slow to 1.8% -- almost half of what it has been historically. In fact, if the economy does nothing more than continue to grow on its current path, the Social Security Trust Fund yields a surplus for as far out as we can forecast Ė well into the next century.
Fact: If the economy performs as poorly as the Trustees project, then the last place on earth youíd want to put your money is in the stock market. The President canít have it both ways. Bottom line? If the economy performs as it has in recent history, then thereís no shortfall, thereís a surplus. If it performs as poorly as the Trusteesí forecast suggests, then stocks will do what they always do in bad economic times Ė theyíll tumble. The Presidentís privatized accounts must earn more than 6% to break even, something few economists believe possible in a sluggish economy.
Fact: Demographics arenít destiny. Mr. Bush likes to point out that the number of workers per retired person will go from 16 to 1 when Social Security was founded down to 2 to 1 in 2041. The inevitable result, according to the President? Insolvency. "Itís jusí a matter of simple math," he likes to say. Not exactly. First of all, the 2 to 1 figure assumes that immigration suddenly and inexplicably reverses a 50 year pattern of steady growth. Second of all, most of this dramatic change has already occurred Ė there are just over 3 workers per retired person today, and the Trust Fund, far from going insolvent, is generating a surplus.
Fact: You wonít be able to decide how to invest "your money", and you wonít be able to leave it to your heirs. Americans who choose privatized accounts will be allowed to invest only in one of several government-designated portfolios, and, upon retirement, they will be required to purchase annuities in order to assure thereís enough to provide a guaranteed monthly check for the rest of their lives. For the vast majority of Americans, there will be nothing left for their heirs, once they purchase the annuity.
Fact: Social Security is also a disability and insurance program. In the current system, if you become disabled you get payments, even if you havenít put a lot of money into the Fund. Similarly, if you die early, your dependents receive benefits, regardless of how long youíve contributed to the Fund. Itís not clear how -- or whether -- privatized accounts could assure these important aspects of Social Security.
Fact: Fixing Social Security does not require draconian changes. If need be, Social Security can be shored up with just a few adjustments Ė none of them particularly painful. To see just how easy, go to the home page of the American Academy of Actuaries, and play the Social Security Game. As the game shows, fixing SS can be as simple as gradually raising the retirement age as life spans increase, and removing all or some part of the cap on payroll taxes (which currently exempts those earning over $90,000 from additional payroll taxes). One strategy the Game doesnít include Ė retaining the inheritance tax for estates worth more than $3.5 million ($7 million for couples) and dedicating it to Social Security Ė would cover 25% of the purported shortfall by itself, while still exempting most small businesses and farms from the tax.
So why is the President trying to fix Social Security if it ainít broke? Itís all about ideology. Conservatives have been trying to kill Social Security since it was created. They believe in a survival-of-the-fittest approach to assuring well-being, and they prefer private market solutions, not government programs.
Price indexing is a divide-and-conquer strategy -- The Center on Policy and Budget Priorities projects that the Presidentís Plan would result in cuts for more than 70% of Americans. If no one but the poor benefits from Social Security, then it becomes a political sitting duck.
If Republicans were to be honest, they wouldnít be ginning up fake financial disasters, theyíd be basing their arguments on their ideology. But they know thatís a debate they canít win, and so we are treated to yet another wag-the-dog deception about crises that donít exist coupled with solutions we donít want.
John Atcheson has written extensively on politics and policy and his writing has appeared in the Washington Post, The Baltimore Sun, The San Jose Mercury News, The Memphis Commercial Appeal and several other papers, as well as various wonk journals. He has over 30 years experience in government and with the nation's premier think tanks. He can be reached at email@example.com