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.