Social Security's Real Problem - Trust Fund Theft
Dean Baker and Mark Weisbrot
Not since Gary Condit ran for office with the slogan "Setting a Good Example" has the public been presented with an image that begged so much to be tarnished. The "President's Commission to Strengthen Social Security" is anything but that, and its interim report -- released this week -- is truly shameful.
The whole enterprise is a web of deceit, starting with its fundamental premise: that Social Security is not sustainable in its present form. The standard projections, which are used by the Commission, assume the slowest economic growth in the nation's history. Yet they still show that all promised benefits will be paid for the next 37 years without any changes at all, and that the program will always be able to pay a larger benefit than current retirees receive.
Even if we assume the Commission's pessimistic assessment of the future is correct, the projected size of the shortfall over 75 years is less than we dealt with in the 1950s, 1960s, 1970s, or 1980s. We are talking about a small potential problem several decades from now, brought on by the cheery fact that future generations will be living longer lives than we do.
Our descendents -- hopefully with more honest political leaders -- will have to decide how much of their longer lives they wish to spend in retirement, and how they will pay for it. We are confident that they will be able to handle these choices.
But the Commission is determined to manufacture a mountain from a molehill, in order to prepare the public for its real goal: privatization. To do this, they have adopted some sleight-of-hand that Social Security's more shameless detractors have been practicing on talk shows for years. It's called "Dumping the Social Security Trust Fund in the Trash."
It's easy: just pretend that those hundreds of billions of dollars that Social Security has been piling up to help finance the baby boom retirement don't exist! Since 1984, Social Security has been collecting more revenue than it pays out. The surplus, as required by law, is invested in US Treasury securities. It currently stands at more than $1.1 trillion (approximately $8,000 per worker), and is expected to triple (in real, inflation-adjusted dollars) before it is drawn down to help finance the benefits of the baby boom generation.
The Commissioners would have us believe that all that money taken out of our paychecks over the last decade and a half, and loaned to the Treasury, is as good as gone. Nice try! Sell that story to Citibank, or Bill Gates, or any billionaire or pension fund that has loaned money to the government and received a US Treasury bond in return.
If they could pull off this heist, the Commission would move Social Security's troubles up to 2016. This would provide a time frame that Americans who are not regular science-fiction fans might be able to take seriously.
Of course, even if Social Security did have a problem, privatization would only worsen it. Diverting a chunk of Social Security's revenues into private individual accounts would mean that the program would either have to raise taxes, borrow, or cut benefits. It's clear which direction this Commission would take: they would cut benefits. Hence the need to convince the public that Social Security is facing serious troubles up the road.
Unfortunately, many Democrats gave this notion a bi-partisan stamp of approval a few years ago, for their own political reasons. They thought that they could beat the Republicans' proposed tax cut by arguing that the revenues were needed to "save" Social Security. It wasn't true, nor was it clever: the tax cut passed, and now most Americans think that Social Security is financially unsound.
But Social Security is still immensely popular -- it keeps half of our elderly from falling below the poverty line, and for the majority of seniors it is actually their main source of income.
And the truth has a way of leaking out, over time. Those who would harm this program, including the President and his Commission, had better look over their shoulders.
Until recently, Social Security was commonly known as the "third rail" of American politics. At a Harvard conference this month, economist Jeffrey Frankel, an adviser to President Clinton, said that Clinton had "shut off the power in the third rail."
We'll see about that.
Dean Baker and Mark Weisbrot are Co-Directors of the Center for Economic and Policy Research, in Washington, D.C.