To: "homestead AT lists.ibiblio.org" <homestead AT lists.ibiblio.org>
Subject: [Homestead] Social Security--a fake crisis
Date: Tue, 04 Jan 2005 06:13:56 -0700
OP-ED COLUMNIST
Stopping the Bum's Rush
By PAUL KRUGMAN
Published: January 4, 2005
The people who hustled America into a tax cut to eliminate an imaginary
budget surplus and a war to eliminate imaginary weapons are now trying
another bum's rush. If they succeed, we will do nothing about the real
fiscal threat and will instead dismantle Social Security, a program that is
in much better financial shape than the rest of the federal government.
In the next few weeks, I'll explain why privatization will fatally
undermine Social Security, and suggest steps to strengthen the program.
I'll also talk about the much more urgent fiscal problems the
administration hopes you won't notice while it scares you about Social
Security.
Today let's focus on one piece of those scare tactics: the claim that
Social Security faces an imminent crisis.
That claim is simply false. Yet much of the press has reported the
falsehood as a fact. For example, The Washington Post recently described
2018, when benefit payments are projected to exceed payroll tax revenues,
as a "day of reckoning."
Here's the truth: by law, Social Security has a budget independent of the
rest of the U.S. government. That budget is currently running a surplus,
thanks to an increase in the payroll tax two decades ago. As a result,
Social Security has a large and growing trust fund.
When benefit payments start to exceed payroll tax revenues, Social Security
will be able to draw on that trust fund. And the trust fund will last for a
long time: until 2042, says the Social Security Administration; until 2052,
says the Congressional Budget Office; quite possibly forever, say many
economists, who point out that these projections assume that the economy
will grow much more slowly in the future than it has in the past.
So where's the imminent crisis? Privatizers say the trust fund doesn't
count because it's invested in U.S. government bonds, which are
"meaningless i.o.u.'s." Readers who want a long-form debunking of this
sophistry can read my recent article in the online journal The Economists'
Voice (www.bepress.com/ev).
The short version is that the bonds in the Social Security trust fund are
obligations of the federal government's general fund, the budget outside
Social Security. They have the same status as U.S. bonds owned by Japanese
pension funds and the government of China. The general fund is legally
obliged to pay the interest and principal on those bonds, and Social
Security is legally obliged to pay full benefits as long as there is money
in the trust fund.
There are only two things that could endanger Social Security's ability to
pay benefits before the trust fund runs out. One would be a fiscal crisis
that led the U.S. to default on all its debts. The other would be
legislation specifically repudiating the general fund's debts to retirees.
That is, we can't have a Social Security crisis without a general fiscal
crisis - unless Congress declares that debts to foreign bondholders must be
honored, but that promises to older Americans, who have spent most of their
working lives paying extra payroll taxes to build up the trust fund, don't
count.
Politically, that seems far-fetched. A general fiscal crisis, on the other
hand, is a real possibility - but not because of Social Security. In fact,
the Bush administration's scaremongering over Social Security is in large
part an effort to distract the public from the real fiscal danger.
There are two serious threats to the federal government's solvency over the
next couple of decades. One is the fact that the general fund has already
plunged deeply into deficit, largely because of President Bush's
unprecedented insistence on cutting taxes in the face of a war. The other
is the rising cost of Medicare and Medicaid.
As a budget concern, Social Security isn't remotely in the same league. The
long-term cost of the Bush tax cuts is five times the budget office's
estimate of Social Security's deficit over the next 75 years. The botched
prescription drug bill passed in 2003 does more, all by itself, to increase
the long-run budget deficit than the projected rise in Social Security
expenses.
That doesn't mean nothing should be done to improve Social Security's
finances. But privatization is a fake solution to a fake crisis. In future
articles on this subject I'll explain why, and also outline a real plan to
strengthen Social Security.
http://www.nytimes.com/2005/01/04/opinion/04krugman.html
[Homestead] Social Security--a fake crisis,
Gene GeRue, 01/04/2005