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P.T. Barnum and the Social Security Crisis

Figures 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 Security.

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 growing.

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.

óGene Mirabelli

 


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