The President's New Legacy - Keeping It Honest
Los Angeles Daily News, February 1, 1999
Knight-Ridder/Tribune Media Services, January 28, 1999
Salt Lake Tribune, January 31, 1999
Albany Times-Union, January 31, 1999
There were sighs of relief all over Washington when the President announced his Social Security plan last week. Those of us who want to protect and preserve the program were expecting much worse. Most of the plans that have been put forth by think tanks or members of Congress have called for either some sort of privatization, or benefit cuts that would push millions of senior citizens below the poverty line-- or both.
The President’s plan did neither of these things, but it’s a bit too early to pop the cork on the champagne. Privatization remains a real and present danger. Here’s why: the President proposed to invest about $700 billion of the Social Security Trust Fund’s assets in the stock market. Congressional Republicans probably won’t swallow this part. But they may very well come back and say, "Okay, you want to put some of Social Security’s revenue in the stock market? Fine, but let’s put the money into individual accounts."
That would seriously undermine the guaranteed benefits and stability that Social Security has always provided for America’s elderly, while creating enormous administrative waste. And there is no telling whether the President would sign such legislation if it were to pass Congress. After all, the whole point of his plan is to get himself a legacy other than being the first President to be impeached in 130 years.
I have to emphasize this, because most Americans have been misled to believe that Social Security faces serious financial problems when the baby boomers begin to retire in 2008. But in fact the program has already provided for the baby boomers’ retirement-- that’s why we have been piling up a surplus in the Social Security Trust Fund since 1984. Any shortfall that might occur after the baby boomers are retired-- in 2032-- is really not much to worry about.
In fact, the whole projected shortfall over the program’s 75-year planning period amounts to less than one percent of our national income. So Social Security was never in any real danger, except from those who have been trying to "fix" it.
Nonetheless, if the President wants to shovel $2.7 trillion of future budget surpluses into Social Security’s Trust Fund, that’s fine. It would take care of most of the projected shortfall, and if President Clinton wants to claim that he has "saved" Social Security-- so be it.
Putting part of this money in the stock market is another story. The whole justification for this move is to earn a higher rate of return on the Social Security Trust Fund’s assets, but the logic here is fundamentally flawed. The Clinton Administration is assuming that stocks will get the same rate of return in the future that they had in the past. But they are also assuming that the economy will grow less than half as fast as it used to grow.
These two assumptions cannot be reconciled. And of course if the economy were to grow fast enough to provide the stock market returns that the Administration is assuming, then the Social Security Trust Fund would pile up an enormous surplus, indefinitely-- without having to invest anything in stocks.
The bottom line is that Social Security is financially sound, and would be even sounder with the commitment of funds from future federal budget surpluses. But the stock market has nothing to contribute to securing America’s largest and most successful social insurance program.