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  • From: Gene GeRue <genegerue AT ruralize.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Social Security--the straight skinny
  • Date: Tue, 18 Jan 2005 06:21:37 -0700

And here is the last page:

(Page 9 of 9)

Since wages generally rise faster than inflation, retirees in each generation get more in real dollars than those in previous ones. Contemporary critics, like Kasich and the Bush council, would slow the rate of future increases by linking benefits only to inflation. Though this would save a lot of money, its effect on retirees should be understood.

Seniors now get an initial benefit that is tied to a fixed portion of their pre-retirement wages. If the index was changed, their pensions would be pegged to a fixed portion of a previous generation's income. If this standard had been in force since the beginning, retirees today would be living like those in the 1940's -- like Ida Fuller, which would mean $300 a month in today's dollars, as opposed to roughly $1,200 a month.

One way or another, societies with more old people have to devote more resources to them. Right now, benefits amount to 4.3 percent of G.D.P. The trustees' most likely projection assumes that over the next 75 years that figure will rise to 6.6 percent. In the more optimistic case, benefits will rise to 5.2 percent. Given the substantial increase in the elderly population, neither of these figures seems rash or out of proportion. The increased cost would be on a par with that of making Bush's first-term tax cuts permanent, which is projected to be about 2 percent of G.D.P.

And though future generations of workers will have to support more retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total ''dependency'' burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak. ''In a grand social sense,'' says Thompson, the former Social Security commissioner, ''we can support more seniors where there are fewer people in day care.''

THE INESCAPABLE COSTS OF AGING

Ultimately, every 75-year forecast is just a guess, and therefore every approach must accommodate a range of possible outcomes. Plans that link worker benefits to the stock market automatically adjust -- if the economy underperforms, then workers get lower benefits. This enhances, rather than mitigates, whatever is the trend in people's private savings. As Thompson says, ''The default adjustment is you eat less.'' This could be brutal and also unfair, especially to the post-1983 generation of workers that, on the say-so of Greenspan and Reagan that the trust fund would be honored, has paid a sacrifice in both reduced benefits and higher taxes.

What other solution is there? Ball, who joined the system in 1939 as a $1,620-a-year district officer in Newark, has thought of one. He starts from two premises: it would be reckless not to make some adjustments now, but foolish to make too much of 75-year prophecies. ''In 1928, there was no way to forecast the Depression, World War II, the birth-control pill. We have to stop acting as if 75-year estimates were absolute,'' he told me.

Nonetheless, Ball would tweak the system in several modest ways to reduce the projected deficit. For instance, he would very gradually raise the cap on income subject to the payroll tax, now at $90,000. This would reverse a recent regressive trend. Income distribution in America has become more skewed, thus upper-income folks have earned more money that has escaped the tax. Ball would also add three other, smaller fixes to further tighten benefits and raise taxes. (There are many variations of these fixes floating around the Beltway.) After Ball's prescription, how much of a deficit would then remain? Possibly a fraction of a percent of the payroll, possibly zero. The answer would depend on the net effects of future birth rates, wars, diseases, inventions and so forth. Enter now Ball's little accommodation to uncertainty. It is that Congress simply resolve now to impose, 50 years hence, a payroll tax increase sufficient to close whatever gap exists over the ensuing quarter-century. This could not be enforced now, of course, but that is Ball's point. He wants to free the Congress, and the rest of us, from the annual game of insisting on an exact and illusory far-off balance; to diminish the perception that we must urgently adjust to economic and demographic developments too distant to be forecast.

The 2004 ''Economic Report of the President'' takes dead aim at such an approach. It reckons that all pay-as-you-go systems will eventually be doomed by demographics, and that solutions like Ball's will only push back the date that the trust fund runs out of money by a few years. The White House worries that any fix that covers 75 years of benefits could still bequeath a deficit in the 76th year. ''The nation must act to avert a long-foreseen future crisis in the financing of its old-age entitlement programs,'' the report states. Its assumptions may be true, or they may not be, but the conclusion suggests a misplaced allegiance: We have an obligation to the distant future, but don't we owe a greater debt to the current generation and to those that immediately follow?

Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.

Roger Lowenstein is a contributing writer and the author of ''Origins of the Crash.'' His last article for the magazine was about presidents and job creation.






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