November 03, 1998
Washington Times, November 3, 1998
Buffalo News, November 8, 1998
It’s election season and suddenly the Social Security system has more friends than a winner of the Powerball lottery, all gushing concern about “saving” the program from one threat or another. Campaign commercials on TV attack opposing candidates for trying to squander the Social Security surplus on tax cuts or other spending.
There is a lot of confusion here, most of it deliberately created. Fortunately, the truth is relatively simple: Social Security doesn’t need to be saved, except from its would-be rescuers. And whatever the Federal government does with its budget surplus, it doesn’t have anything to do with Social Security.
For the next 34 years, Social Security will pay all of its promised benefits, without anyone having to do anything new, other than reprogram the computers for the year 2000. Thirty-four years is a long time– in fact all the baby boomers will be retired within this time. So we have already taken care of the much-feared “demographic problem.”
Unfortunately, Social Security’s Trustees make projections for 75 years– an awfully long time, considering that our best forecasters can’t even project the Federal budget surplus (or deficit) one year out, within a margin of 80%. But even for those who like to pretend that they have some idea of what the world will look like in the latter half of the 21st century– I don’t– a Social Security crisis is not in the cards. The projected gap between revenues and payouts is small enough so that those who might have to pay higher taxes will still have much more after-tax income, and a much higher standard of living, than the average American enjoys today. These generations of Americans will be living longer lives, and if they choose to spend more of their lives in retirement, they probably won’t complain too much about having to pay for it.
So the whole discussion about Social Security today is completely politically driven– there is no economic, budgetary, actuarial, or demographic reason for anyone to be worrying about the program. But there’s a gentleman’s agreement here in Washington not to raise this point. That’s because so many powerful people, from Wall Street financial firms who stand to gain billions from privatization, to the President himself, have a vested interest in pretending that there’s a problem that needs to be fixed.
Of course there are many influential people who are aware that the whole thing is a farce, and they will admit this in private. But we live in the age of the focus group and poll-driven politics. Polls show that most Americans believe that major changes are needed, and who wants to go against the polls? So it is easy to see how a consensus can be formed around almost anything, such as the moon being composed primarily of green cheese.
This brings us to the second major confusion around the issue: the idea that spending the Federal budget surplus will somehow hurt Social Security. President Clinton and many Democrats have been most active recently in promoting this error. They have used it to fend off a Republican tax cut proposal, with the slogan “Save Social Security First:” in other words, before spending the budget surplus.
But this makes no sense at all. Imagine you buy a treasury bond from the U.S. government. The Federal government then spends your money to build a highway. Is your money gone? Most financial analysts would say no– that your bond has the full faith and credit of the U.S. government, and you will be paid back, with promised interest.
The same is true for the Social Security Trust Fund, which is a separate entity from the rest of the U.S government: the bonds in which it has invested Social Security’s surplus revenues are just as real as those held by anyone else. The Treasury must pay the interest and principal on those bonds, regardless of what is done with the Federal budget surplus. To talk about the Federal government “squandering” or “raiding” the Social Security Trust Fund is just as ridiculous as saying that your personal wealth has been “raided” when the government uses the money from your treasury bond to build that highway.
President Clinton thinks he is about to create an easy legacy for himself, “saving” Social Security from a non-existent threat. He better think twice. Whatever cuts he chooses to endorse, they are guaranteed to push millions of senior citizens below the poverty line. When the truth leaks out, and it becomes clear that this suffering is unnecessary and unjustified, he may find himself with a legacy that is even less popular than the one Ken Starr has labored so hard to bestow upon him.