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For the Record on Social
Security
NY Times
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.
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.
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