Pete Peterson Doesn't Need His Social Security

He has said so himself many times. Peter Peterson first came to national prominence more than three decades ago as commerce secretary in the Nixon administration. However, he is far more widely known in his reincarnation as a crusader against Social Security and Medicare.

Fifteen years ago, Peter Peterson used some of the immense wealth he had accumulated as an investment banker to create and bankroll the Concord Coalition. The Concord Coalition was designed as a bipartisan organization promoting fiscal responsibility, with its primary targets being Social Security and Medicare. Peterson and his crew put out screeds, with titles like "Grey Dawn," that attacked these programs and warned that the growing wave of elderly would bankrupt the country.

Like most of the granny bashers, Peterson routinely played fast and loose with the facts. For example, while warning about the poverty facing future generations, he suggested cutting the annual Social Security cost of living adjustment because the official consumer price index (CPI), to which retirees benefits are indexed, overstates the true rate of inflation. However, if the CPI really overstates inflation, then incomes are rising much more rapidly than the official data show; and future generations will be far richer than we could possibly imagine. (If income rises by 4 percent and the inflation rate is 3 percent, then real income has risen by 1 percent. But if our measure of inflation is wrong, and the rate of inflation is just 2 percent, then real income has risen by 2 percent.)

Peterson also did his best to conceal the real source of projected budget problems: a broken US health care system. As Peter Orszag, the director of the Congressional Budget Office, has repeatedly noted, the projections for exploding deficits are driven by projections for exploding costs for government health care programs like Medicare and Medicaid. The costs of these programs are in turn driven by rising private sector costs.

If we fix our health care system and get costs under control, then the growing population of elderly will pose no greater burden in the future than in the past. (We have always had an aging population. We live longer than our parents' generation and our children's generation will live longer than our generation.) If we don't fix our health care system then it will inflict enormous damage on the economy, even if we eliminate Medicare, Medicaid, and other public health care programs altogether.

But Peterson's priority is not fixing health care, it is cutting Social Security and Medicare; and he is not a man to let facts or logic get in his way. He used his wealth to buy a substantial audience for his books and his views, most often in forums where they could not be challenged by real experts.

I recall hearing Mr. Peterson pontificate for an hour, completely unchallenged, on a major public radio talk show. At one point, he assured his audience, with reference to the solvency of Social Security, "trust me, there is no trust fund." Mr. Peterson repeated this lie verbatim, just in case the meaning escaped his audience.

Of course, there is a Social Security trust fund that holds more than $2 trillion in government bonds. Under the law, these bonds are to be repaid from general revenue, which comes almost entirely from the personal and corporate income tax. In other words, the bonds held by the Social Security trust fund, which are supposed to pay the Social Security benefits of retired workers, are effectively tax obligations for wealthy people like Mr. Peterson. If the bonds held by the Social Security trust fund are never repaid, Mr. Peterson and/or his heirs could save tens of millions of dollars from their future taxes. It shouldn't be surprising he is trying to convince the public that the trust fund doesn't really exist.

But, this is just one side of Peter Peterson. He was in the news last week for a totally different reason. It turns out, a loophole in the current tax code allows hedge fund and equity fund managers (like Mr. Peterson) to pay taxes on their compensation at a much lower rate than ordinary workers. While middle income workers like school teachers and firefighters typically face a 25 percent income tax rate, Peter Peterson and other fund managers get to pay the much lower 15 percent capital gains tax rate on the tens of millions they earn each year.

According to The Washington Post, Mr. Peterson was actively lobbying Congress to ensure he and his ilk are not taxed like ordinary workers. The Post reported that Mr. Peterson's efforts apparently paid off: He and his fellow fund managers will continue to enjoy special tax breaks. As Pete Peterson says, he doesn't need his Social Security.