Barnum and the Social Security Crisis
donít lie, but liars can figure. Now the most powerful liar
in the world, the man whose half-truths and distortions are
repeated on TV and on the newspaperís front page, has raised
his voice about another ďcrisis.Ē President George W. Bush,
the P. T. Barnum of politics, is talking about reforming Social
He says Social Security is running out of money and he wants
to rescue the program by privatizing some of it.
Thereís a sucker born every minute.
Actually, there is no onrushing crisis in Social Security.
Furthermore, privatization would undermine one of the most
successful programs, socially and financially, that our government
has ever run. The presidentís plan would divert dollars away
from Social Security, dollars that the system requires to
make it work, and direct those dollars to millions of privately
owned investment accounts. The plain ugly fact is that the
president and his wealthy friends donít need Social Security,
are philosophically opposed to it, and want to get rid of
it. Bush canít make a frontal attack on the program because
itís too popular, but he can ďreformĒ it to death.
Privatization ďreformĒ has the support of conservative ideologues
and the boys down at the yacht basin who donít want to get
taxed for a benefit they donít need. From them you may have
heard that Social Security is a pay-as-you-go program, a Ponzi
scheme, a scam where everything that comes in is immediately
handed out to pay current benefits. You may even have seen
some statistics showing that there are now 3.3 workers paying
in for every one receiving benefits, and that soon there will
be only 2 workers paying in for every recipient, and when
that happens the system will break down. Or, on the other
hand, you may have heard that there is indeed a Social Security
Trust Fund, but that itís empty because the government has
already spent all the money on other things.
Yes, Social Security is a pay-as-you-go program; itís always
been that way and itís worked fine for 70 years. The program
collects more in taxes than it pays in benefits. From time
to time the payroll tax has been increased to make sure that
thereís more than enough cash coming in to pay the promised
benefits. Years ago a Social Security payroll tax of 2 percent
was applied to the first $3,000 of a workerís income. Today
the tax is 12.4 percent on the first $87,900 of earnings.
Currently, the number of people receiving benefits is increasing
and the number of paying workers is decreasing. Around 2018,
the stream of cash flowing into the Social Security system
will begin to get smaller than the stream flowing out. But
that is not a crisis. As with a large tank of water,
when the amount flowing in becomes smaller than the amount
flowing out, that does not mean the tank suddenly goes
dry. Thereís still a lot of water in the tank and a lot of
cash in the system. In fact, the cash reserve will still be
The trustees of Social Security have estimated that reserves
for the program will not be exhausted until 2042. An updated
Congressional Budget Office projection released on Jan. 31
estimates the retirement system will exhaust its trust fund
by 2052, 10 years later than those projections. When, or if,
the reserves were to be used up, then the only cash available
for the outgoing benefit stream would be cash still flowing
in. Workers would still be working and a slice from their
paychecks, plus an equal amount from their employers, would
still flow into Social Security. Itís true that if that situation
came about, benefits would have to be reduced by around 30
percent. Bush and Dick Cheney refer to that as ďbankruptcy.Ē
The privatization demagogues will tell you that that the surplus
collected by Social Security taxes isnít really there because
your wasteful government has spent it all. Well, itís true
your prudent government didnít stuff the excess cash into
a vault where it would mildew. Instead it invested the money
in U.S. government bonds, which pay interest.
The comfortable conservatives at the Heritage Foundation,
suddenly concerned about your future, will tell you that itís
an accounting trick. In their misleading report with the wonderfully
accurate title Misleading the Public: How the Social Security
Trust Fund Really Works, they complain that the bonds
in the trust fund are only IOUs. Well, thatís what bonds are.
Our government has always paid its IOUs.
Last year Social Security invested $165.5 billion in special
treasury bonds. These bondsóthe safest on the planetóare earning
approximately 7 percent in annual interest. Last year about
13 percent of Social Securityís total income, around $80 billion,
was interest alone. It brought the total holding of the trust
fund to more than $1.4 trillion. Thatís where the money went.
The Social Security program does need to adjust for the future
by raising taxes, or raising the amount of taxable income,
or moderating benefits or by advancing the year when benefits
begin, or (class warfare!) by using a more progressive tax
on benefits to the rich or on their unearned incomeóor some
combination of all these things plus other changes.
The president hasnít told us how those millions of privately
owned accounts will work. Ideally, each worker who owns an
account would be knowledgeable in the ways of the stock market
and would invest wisely, so that by retirement the money will
have increased more than if it had been handed over to Social
Security. But, alas, the stock market goes down as well as
up, and it can take years and years for the market to recover
from a drop. Two-thirds of Americans age 65 and over get at
least half of their income from Social Security. For one-third
of beneficiaries, especially older women, Social Security
is nearly their entire income. Maybe they would have been
lucky as investors. Or maybe not.
Privatization will only erode the system. If money which has
been coming into Social Security is diverted to private accounts,
Social Security will indeed face a big problem. Estimates
vary, but the consensus is that diverting, say, 2 percent
of expected Social Security income to private accounts would
cost the system about two trillion dollars over 10 years.
Currently the war in Iraq costs somewhat more than one billion
dollars a week and as of Feb. 1, our government had a national
debt of $7,633,816,033,930. Thatís not the way to go.