The Illusory Crisis
Times magazine, January 6, 1997
The Social Security system is a model of good government. It benefits almost all Americans, especially workers who live past their mid 60s. In 40 years, it has cut the number of elderly living below the official poverty line from 35 percent to 12 percent. It provides disability benefits to those unable to work and an average of $700 per month to minor children whose working parents die. Furthermore, administrative costs are less than 1 percent of benefit payments, far less than private pension systems.
Perhaps the very success of this government program explains why a whole industry has grown up to terrorize Americans into believing that Social Security is approaching a crisis. Few issues in public life have been more lied about by right wing ideologues and by the entire range of our corporate media. This has created a generation of young people who believe they will never receive the benefits for which they are now being taxed. In fact, more young Americans are said to believe in UFOs than in the likelihood of receiving their retirement income.
Those now trying to dismantle the Social Security system, of course, argue that they intend only to save it. They claim that the annual surplus of Social Security tax revenue over payouts—now at $60 billion a year and projected to total $3.3 trillion by 2020—will disappear in about 25 years, and that it will take only another 10 years or so to use up the accumulated kitty.
To solve this problem, seven of the 13 members of the Social Security Advisory Council recently proposed some form of privatization. Five of the members would have individual workers manage all or part of their Social Security contributions. Under this plan, millions of investment portfolios would be created, and workers would make their own decisions about what stocks to buy. The theory is that the stock market will rise at a faster rate than the interest paid on the special bonds in which the surplus is now supposed to be invested, and will therefore keep the system solvent.
The problem with this and similar proposals—besides the social fragmentation that such plans would accelerate—is that they would cost more than the current system, and many workers would lose their savings as a result of bad investments. According to the Social Security Advisory Council, these plans would require an additional tax of 1.6 percent to pay the added administrative costs, and the federal government would have to lend the system as much as $1 trillion to cover the expense of transition from the current system to a privatized one. The main beneficiaries of the new system would be the stockbrokers, who would charge for managing each account and for every individual transaction. Wall Street would make a killing under such a reform.
In fact, however, the crisis is illusory. The Social Security Administration (SSA) bases its estimate that surpluses will end in 2020 on a projected annual GDP growth rate of only 1.49 percent. Yet GDP has grown by an average of 3.5 percent for the past 75 years. If the future rate is anywhere near the historic average, Social Security will run a surplus indefinitely—without tax increases or benefit cuts. But even if the growth rate is close to SSA projections, a tax increase no larger than the 1.6 percent proposed by the "reformers" would keep the current system solvent for decades beyond 2020. So, too, would the inclusion of the four million government workers not currently covered by Social Security.
The "reformers" do have one valid concern. The accumulating Social Security fund should be segregated and protected, so that it is there if needed. In fact, the Congress "borrows" the Social Security surplus each year to hide the true extent of the federal deficit. This year, for example, the deficit is $168 billion, but we are told it is $108 billion because the $60 billion Social Security surplus is treated as if it were ordinary income. So by 2020, when there should be a $3.3 trillion surplus, there will be nothing but government IOUs. If the money is then needed, it will have to be raised by new taxes or by the sale of government bonds, neither of which will be easy to sell to the public.
That is why we have proposed (see "How to save Social Security," April 29, 1996) that the Social Security fund administrators invest surplus funds in the private market. Fund administrators might invest some of the money in stocks, but most of the money should be put in development bonds for infrastructure, low cost housing, education loans and other forms of socially useful public investment. That way, if the surplus is ever needed, it will be available.
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