Saving Social Security From Those Who Want to "Fix" It
Philadelphia Inquirer, April 27, 1998
Journal of Commerce, April 20, 1998
Champaign-Urbana News Gazette, July 12, 1998
We have a chance, said the President, to "fix the roof while the sun is still shining." He was talking about dealing with Social Security now, with the economy growing and the federal budget balanced. The analogy is a little off, but we can make it more accurate. Imagine that it's not going to rain for more than 30 years. And the rain, if it ever does arrive, will be pretty light. And imagine that the average household will have a lot more income for roof repair by the time the rain is approaching.
Now add this: most of the people who are proposing to fix the roof actually want to knock holes in it. This is the actual situation of Social Security, and it is well known to those who have looked at the numbers. The program will take in enough revenue to keep all of its promises for the next 32 years, without any changes at all. Thirty-two years is a long time-- it's hard to think of any other program that can claim to be secure for that long.
And the forecast of a shortfall in 2030 is based on the economy limping along at less than a 1.7% annual rate of growth-- about half the rate of the previous three decades. If the economy were to grow at anywhere near last year's rate, for example, the system would never run short of money.
Contrary to popular hype, the retirement of the baby boom generation will not bankrupt the program. In fact that generation will be retired before there is any projected shortfall.
But what if these dismal projections come true? Would the working generations of the post-2030 era suffer an undue burden in supporting retirees? Hardly. Even if payroll taxes had to be increased to cover the shortfall, the average real wage-- after adjusting for inflation-- would still be over 30% higher than it is today.
The simple truth is that our economy is generating more than enough income to provide a rising standard of living for future generations, while meeting our commitments to Social Security. That's true even at the terribly slow rates of growth projected for the future.
This isn't as obvious as it should be. That's mainly because the majority of employees haven't been sharing in the gains from economic growth. For more than 20 years, most wage and salary earners have actually seen a decline in their pay. So when people hear that future generations will be able to meet Social Security's obligations out of a much higher income, they don't believe it.
To reclaim the majority's share of the economic pie is the real "challenge and opportunity of the 21st century," to paraphrase one more of the President's cliches. And we also need to restore a higher rate of economic growth. Yet these two most important economic issues have been removed from the political agenda. Instead we are told that we can no longer afford our not-so-generous social safety net for the elderly. It is one of the greatest triumphs in the history of public relations to have transformed this prolonged episode of class warfare into an intergenerational conflict. The casualties are potentially enormous: almost all of the proposals being discussed would push millions of senior citizens below the poverty line.
Raising the retirement age, for example, does not simply postpone benefits, but cuts them significantly for the majority of workers who retire early. It also hits African-American and low-income workers many times harder than others. A typical black male worker who is 38 years old today can expect about 2.3 years of full retirement benefits, as compared with 8.4 years for his white counterpart. Do we really want to worsen that ratio by taking a year or more away from each?
Of course there are a number of ways to raise revenue to the system which would make it more rather than less fair, but these are not on the table. For example, we could tax non-labor income-- e.g. capital gains-- which has increased relative to labor income in recent years. Or we could remove the ceiling-- currently $68,400-- on wages that are taxed. Instead, we are offered various forms of privatization along with the cuts. Now there is the real source of urgency behind the whole campaign to "fix" Social Security. Wall Street stands to gain tens of billions in brokerage and administrative fees from privatization. They are anxious to get the job done before people rediscover that stocks can go down as well as up.
We can leave the system alone for ten or fifteen years, without any harm to future generations. Perhaps by then the political climate will have changed, and attacking programs for the elderly will once again be seen as cowardly rather than as a sign of political courage. In the meantime, the best we can do is to keep the wrecking crew away from the house, especially if they are disguised as a roof repair team.