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[Gene GeRue <genegerue AT ruralize.com>]

For the Record on Social Security

Published: January 10, 2005

Late February is now the time frame mentioned by the White House for 
unveiling President Bush's plan to privatize Social Security. The timing is 
no accident. By waiting until then, the president will conveniently avoid 
having to include the cost of privatization - as much as $2 trillion in new 
government borrowing over the next 10 years - in his 2006 budget, expected 
in early February.

In this and other ways, the administration is manipulating information - a 
tacit, yet devastating, acknowledgement, we believe, that an informed 
public would reject privatizing Social Security. For the record:

The administration has suggested that it would be justified in borrowing 
some $2 trillion to establish private accounts because doing so would head 
off $10 trillion in future Social Security liabilities. It's bad enough 
that the $10 trillion is a highly inflated figure, intended to overstate a 
problem that is reasonably estimated at $3.7 trillion or even considerably 
less. Worse are the true dimensions of the administration's proposed ploy, 
which were made painfully clear in a memo that was leaked to the press last 
week. Written in early January by Peter Wehner, the president's director of 
strategic initiatives and a top aide to Karl Rove, the president's 
political strategist, the memo states unequivocally that under a privatized 
system, only drastic benefit cuts - not borrowing - would relieve Social 
Security's financial problem. "If we borrow $1-2 trillion to cover 
transition costs for personal savings accounts" without making benefit 
cuts, Mr. Wehner wrote, "we will have borrowed trillions and will still 
confront more than $10 trillion in unfunded liabilities. This could easily 
cause an economic chain reaction: the markets go south, interest rates go 
up, and the economy stalls out."

At a recent press conference, Mr. Bush exaggerated the timing of the 
system's shortfall by saying that Social Security would cross the "line 
into red" in 2018. According to Congress's budget agency, the system comes 
up short in 2052; according to the system's trustees, the date is 2042. The 
year 2018 is when the system's trustees expect they will have to begin 
dipping into the Social Security trust fund to pay full benefits. If you 
had a trust fund to pay your bills when your income fell short, would you 
consider yourself insolvent?

In suggesting that 2018 is doomsyear, the president is reinforcing a false 
impression that the trust fund is a worthless pile of I.O.U.'s - as 
detractors of Social Security so often claim. The facts are different: 
since 1983, payroll taxes have exceeded benefits, with the excess tax 
revenue invested in interest-bearing Treasury securities. (An alternative 
would be to, say, put the money in a mattress.) That accumulating interest 
and the securities themselves make up the Social Security trust fund. If 
the trust fund's Treasury securities are worthless, someone better tell 
investors throughout the world, who currently hold $4.3 trillion in 
Treasury debt that carries the exact same government obligation to pay as 
the trust fund securities. The president is irresponsible to even imply 
that the United States might not honor its debt obligations.

Mr. Bush's reason for ignoring the far more pressing problem of Medicare 
while he pursues Social Security privatization is especially tortured. Over 
the next 75 years, the mismatch between revenues and Medicare benefits for 
doctors' care and prescription drugs is 3.5 to 6 times as much as the 
shortfall in Social Security, according to the Center on Budget and Policy 
Priorities. The Medicare hospital trust fund mismatch is two to three times 
as big. Asked by a reporter last month why he wouldn't tackle Medicare 
first, Mr. Bush said that his administration had already taken on Medicare 
by pushing through the $500 billion-plus prescription drug benefit. Drug 
coverage, he said, would save money for Medicare by paying for medicine 
that would prevent the need for expensive heart surgery. "I recognize some 
of the actuaries haven't come to that conclusion yet," he said. "But the 
logic is irrefutable."

Logic? That thinking is wishful to the point of being magical. Medicare is 
not going to fix itself any more than tax cuts will pay for themselves. And 
Social Security is not a crisis for which enormous borrowing, huge benefit 
cuts and risky private accounts are a solution. Rather, it's a financial 
problem of manageable proportions, solvable without new borrowing by a 
combination of modest benefit cuts and tax increases that could be 
distributed fairly and phased in over several decades, while guaranteeing a 
basic level of inflation-proof income for life.

http://www.nytimes.com/2005/01/10/opinion/10mon1.html

It appears that the president and his aides are trying to sow ignorance to 
gain support for their flawed privatization agenda. Lawmakers, policy 
makers and the American people have to let the administration know that 
they know better.