Sunday, January 16, 2005

If it ain't broke, don't "reform" it!

By: UnrepentantNewDealer

"As a matter of fact, by the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt. So if you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now. And that's what we're here to talk about, a system that will be bankrupt."

Yes, fellow citizens, Our Fearful Leader is at it again! Now that his job is no longer in jeopardy, he has turned his attention to Social Security "reform". Long parenthetical aside follows:

(That word "reform" should set off alarm-bells. In 2000, George Bush was running in the Republican primaries against John McCain, a man whose primary claim to fame was his long crusade for campaign finance reform. In a cynical bid to attract the independent voters who admired McCain, Bush styled himself "The Real Reformer." When pressed to come up with any reforms he had initiated as governor of Texas, he could only come up with his "tort reform" bill, which was a bill that drastically capped the damages citizens could get from businesses in court. Basically, this meant that if you were injured by corporate malfeasance or incompetence, you wouldn't be able to get as much money in court as you used to be able to. Businesses don't do the right thing out of altruism. They do it because they know if they knowingly put a defective or dangerous product out on the market, they will be sued in court and lose a lot of money. But, through "tort reform", damages are capped, meaning businesses can put out defective or dangerous products and view any ensuing lawsuit as a mere nuisance, factored in as part of the cost of doing business. Never let it be said that businesses don't get their money's worth when they send bribes--I'm sorry, the politically-correct term is "contributions"--to the Bush campaign.)

Anyway, as everyone should know by now, Bush's social security reform plan is to privatize--I'm sorry, the administration-approved term is "personalize"--the system, to allow younger workers to divert their payroll taxes into a private account to accumulate interest for their retirement. There are a number of problems with this solution.

I think it was Ronald Reagan who coined the term, "This is a cure for which there is no known disease." The Gipper's description is aptly appropriate to describe the harebrained scheme of the man who, more than any other Republican, slavishly and self-consciously tries to emulate him.

First and foremost, Bush's whole claim for the necessity of his proposed reforms is that Social Security will go belly-up and not be able to pay benefits to younger workers:

"The Social Security system is an account where money comes out to pay for retirees and is put in the system by people who are working. And that's changed. More and more retirees have taken out money relative to the number of people putting money in. In the '50s, there were 16 workers for every beneficiary. So the system was in pretty good shape. Today, there's three workers for every beneficiary. Relatively quickly, there's going to be two workers for every beneficiary. And that's a problem. And that's a problem because in the year 2018, in order to take care of baby boomers... The money going out is going to exceed the money coming in."

So, in 2018, the system will collapse, right? Wrong. Because the Boomers have been working all these years, contributing more in payroll taxes than the government is spending on benefits to current retirees. Because there are so many Boomers who have been working for so many years, and the government raised payroll taxes substantially back in the 1980s, Social Security has built up a little trust fund. Ok, a really, really big trust fund. So, in or around 2018, the government will have to start spending the money in that trust fund to cover paying out benefits to retires. But even then, as it currently stands, Social Security will be able to continue to pay out full benefits until at least 2042, according to the Social Security Trustees, or 2052 according to the nonpartisan Congressional Budget Office. Economist Paul Krugman points out that "these projections assume that the economy will grow much more slowly in the future than it has in the past." Which seems very unrealistc. So, it's probable that Social Security will be able to coast along fine long after 2052. And even if it does need to be overhauled about 45 years from now, all that will be required to make Social Security solvent once again would be to raise taxes, raise the retirement age, or cut benefits.

Even if benefits are reduced as much as would be needed to restore the system to solvency, the actual amount of benefits, in real dollars, would be higher than today, even though Social Security would only be able to pay out 81% of benefits. According to the CBO, via Krugman, "The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year." (The New York Times charges for this article, but doesn't. First click on "Columns" then on "Inventing a Crisis".)

So, by 2052, far from Social Security being bankrupt, benefits would actually be considerably higher than they are today. Well, there goes the President's claim that there is an urgent need to "save" Social Security from going bankrupt.

Just because there is no pressing threat to Social Security doesn't rule out any proposed reforms, it only eliminates their urgency. So, let's take a look at the arguments of the privatizers (let's call them "Privateers") and see if they hold up to the cold, hard light of reason.

The most-touted argument for privitization is that the money you pay in payroll taxes into Social Security is "your money, so you should be able to invest it as you choose." This also the easiest argument to debunk. The payroll taxes those of us who work pay to Social Security aren't "our money". The taxes we pay go to support those who are already retired. That generation worked and paid payroll taxes to support the generation before it. And so on.

This brings up a very large problem. If younger workers are allowed to put their money in a private account, how are those who are currently on Social Security, or will be soon, be able to support themselves? The government's answer: We'll just borrow to pay the difference. The administration acknowledges that the costs of the "transition" over the first 10 years would be between $1 trillion to $2 trillion. According to Krugman, the plan proposed by Bush's Social Security Commission in 2001 "would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt." Which is not an economically wise thing to do when the government is already running the largest deficits in its history. The costs of "transition" to privitization would swell our debt well into the economic danger zone.

What about the argument that over the past 70 years, the stock market has delivered a higher rate of return for investment than Social Security? As far as I know, that one's actually true. You very well might get more bang for your buck from the stock market. Then again, you might not. Social Security is a sure thing. The stock market is America's favorite game of chance.

At the President's Social Security "Summit" this week, where the President conversed with "ordinary Americans" who agreed to parrot the White House's stance on this issue, Bob McFadden, a man from Medford, New Jersey, said, "I believe, personally, that if it's in a personal account, I can invest my money better than the government." This a common argument among the "privateers". The only problem is that you won't be doing the investing at all. The government will. At the same summit, Bush said, "You won't be allowed to just take that money and dump it somewhere."

So, even though he's arguing that Americans should be able to do what they want with their money on principle, turns out the government won't allow anyone to "waste" their money. Oh, no, the government will give you a list of approved stocks to invest in. Which of course deprives you of doing with your money as you please. Because the government knows best. Sorry, Bob, but I'm afraid the government thinks it can invest your money better than you can. Better hope they're right, eh?

All of the arguments put forward by the president and his chorus of "privateers" have proven to be either wishful thinking or unrealistic scenarios of impending doom. The Social Security system isn't broke, and even if it were, the "cure" they propose is far worse than the disease.

Which raises the question of why the President is so adamant about this issue. The President didn't simply misspeak when he said that Social Security will be "flat broke" by the time today's 20-year olds reach retirement age. Neither the government agency responsible for administering Social Security nor the CBA backs up what Bush is saying. Unlike Iraq's WMD, there is not a legitimate difference of opinion among the government analysts on this issue. If the president is so interested in creating an "ownership society", why won't he own up to the facts? He is deceiving the American people in the most cynical way. But to what end?

Again, Krugman has the scoop: "Last week someone leaked a memo written by Peter Wehner, an aide to Karl Rove, about how to sell Social Security privatization. The public, says Mr. Wehner, must be convinced that 'the current system is heading for an iceberg.' It's the standard Bush administration tactic: invent a fake crisis to bully people into doing what you want. 'For the first time in six decades,' the memo says, 'the Social Security battle is one we can win.' "

What battle could they be talking about? The battle to abolish Social Security, of course, the long-time dream of the ultraconservatives. And not just Social Security. These are reactionaries who want to abolish all of the government social welfare programs established in the Twentieth century, all of the programs of the Great Society and the New Deal, as well as all of the reforms of the Progressives. From "tort reform" to regulations on businesses to ensure the safety of our food supply, workplaces, and environment, government regulations are being abolished left and right. These Reactionary Republicans even dream of abolishing the income tax (which weighs most heavily on those who can afford to be taxed most heavily) in favor of a flat tax or a national sales tax (which would weigh most heavily on those Americans who can least afford the burden).

The common element of all these programs the Reactionary Republicans seek to abolish is that they benefit the common good, not the fat cat CEOs of Fortune 500 companies. What we are seeing under this administration is the total regearing of government away from providing for the "general welfare" of all Americans and towards making government a mere tool serving the narrow interests of the business and economic elite. It's time for every American who cares about the "general welfare" of this nation to fight against Social Security privitization tooth-and-nail. For it is just one battle in a much larger campaign. This is one campaign America cannot afford to lose.