Tuesday, the White House will begin its campaign of fear against Social Security

[Guest guest]

On Tuesday, the New York Times reports, the White House will begin its

campaign of fear against Social Security, the backbone of support for

America's Elderly. http://www.buzzflash.com/

 

 

http://www.nytimes.com/2005/01/10/politics/10social.html?oref=login & oref=login

 

January 10, 2005

As White House Begins Social Security Push, Critics Claim Exaggeration

By EDMUND L. ANDREWS

 

WASHINGTON, Jan. 9 - In the first phase of a strategy to build support

for overhauling Social Security, White House officials are planning to

describe the retirement program as a system in " crisis " whose promises

to younger workers are a " fiction. "

 

Beginning Tuesday, when President Bush will hold a public meeting with

people worried about their retirement, White House officials plan to

hammer home the message that Social Security is " headed toward an

iceberg " and will collapse as baby boomers enter retirement.

 

" We need to establish in the public mind a key fiscal fact: right now

we are on an unsustainable course, " wrote Peter Wehner, a White House

political strategist, in a memorandum to conservative groups last

week. " The reality needs to be seared into the public consciousness. "

 

But opponents of Mr. Bush's approach say he is greatly exaggerating

the problems to sell his plan to scale back Social Security, the

government's biggest and oldest social program.

 

Outside analysts say Social Security's long-term financial gap, which

the government estimates to be $3.7 trillion over 75 years, is smaller

than the projected cost of Mr. Bush's tax cuts or the Medicare

prescription drug program that he pushed through Congress in 2003.

 

The Social Security trust fund has accumulated more than $1.5 trillion

in reserves, held in Treasury bonds. Even if no changes are made, the

government's actuaries predict that the program will be able to pay

full benefits until at least 2042 and at least 70 percent of benefits

after that.

 

That is a far brighter outlook than in 1983, the last time Congress

shored up Social Security, when the trust fund was just days from

insolvency.

 

The government's long-term projections for Social Security have become

more optimistic over the last eight years. Since 1997, government

actuaries have pushed back the date of projected insolvency from 2029

to 2042.

 

The nonpartisan Congressional Budget Office, using different

assumptions, predicts that the trust fund will last even longer, until

2052.

 

" There is a problem, but there is no basis for calling it a crisis, "

said Peter Diamond, a professor of economics at the Massachusetts

Institute of Technology and a co-author of the book " Saving Social

Security. "

 

" If you compare its position now with its position at the time of the

last reforms in 1977 and 1983, it's clearly better, " Professor Diamond

said. " Even then, it was readily fixed without radical reforms, and

it's obvious that can be done again. "

 

The Center on Budget and Policy Priorities, a liberal policy research

group, estimated that the Medicare prescription drug program would

cost $8.1 trillion over 75 years. Permanently extending Mr. Bush's tax

cuts would cost $11.6 trillion.

 

" You can make a real argument that the government as a whole faces big

fiscal challenges well before 2042, " said Robert Greenstein, director

of the center. " But Social Security is a very small part of the problem. "

 

Democratic lawmakers, pledging to protect what they regard as one of

their party's most enduring achievements, insist that Social

Security's problems can be easily fixed by tweaks to payroll taxes and

benefit formulas.

 

" Their strategy is, we're going to scare people, cut benefits,

privatize and call it a reform agenda, " said Representative Rahm

Emanuel, Democrat of Illinois.

 

But Mr. Bush's strategy puts Democrats in a difficult position. If

they argue that Social Security is fundamentally in good health,

Republicans could accuse them of irresponsibly glossing over serious

long-term problems.

 

Democrats concede that Social Security faces significant financial

problems that would be best addressed sooner rather than later.

 

The basic facts are not much in dispute. As the nation's baby boomers

start to retire at the end of this decade, the cost of retirement

benefits is expected to rise much faster than payroll taxes from

active workers.

 

Adding to the imbalance, the laws governing Social Security benefits

ensure that payments become higher with each generation of retirees,

even after accounting for inflation.

 

According to the Social Security trust fund's latest projections, the

cost of benefits will start to eclipse payroll taxes in 2018. By 2042,

the trust fund will have used up its reserves and payroll taxes will

cover only about 70 percent of the promised benefits.

 

Beyond the long-term financial gap of $3.7 trillion over the next 75

years, Mr. Bush cites a more alarming number: $10.5 trillion, or

sometimes $11 trillion, as the expected shortfall over an " infinite

horizon. "

 

Actuarial experts are deeply divided about the value of such long-term

projections, but most agree that the problem is real and needs to be

addressed.

 

The basic dispute is whether Social Security is sustainable in its

current form, as a system that provides guaranteed retirement benefits

on a predictable formula.

 

Administration officials argue that the long-term demographic trends

are so ominous that the system cannot be patched up. The only real

solution, they say, is to convert much of Social Security from a

government-guaranteed program to a system of individual savings

accounts and private responsibility.

 

The problem, they contend, is that the gap between payroll taxes and

benefits will grow bigger and bigger over the next 75 years. Solutions

that restore balance over the 75-year horizon can still leave huge

deficits immediately afterward.

 

That was in part what happened after the financial crisis in 1983.

 

A bipartisan commission headed by Alan Greenspan, now chairman of the

Federal Reserve Board, staved off a collapse by hammering out a plan

of payroll tax increases and a gradual postponement of the normal

retirement age to 67 from 65.

 

The changes succeeded, but they were intended only to keep Social

Security solvent for 75 years, until 2058. Even if the changes achieve

that goal, analysts say the program will still face a huge long-term

deficit because the number of retirees will soar in the years after 2058.

 

" What people forget is that the baby boom is not like a pig in the

python, " said Kent Smetters, an associate professor at the Wharton

School of the University of Pennsylvania and a former senior official

in Mr. Bush's Treasury Department.

 

" If you just balance it over the next 75 years, it just means we have

to come back and do the same thing all over again about 15 years from

now, " Professor Smetters said.

 

Even so, critics of the administration contend that Social Security is

far stronger today than at many points in the past.

 

The Social Security trust fund has been running annual surpluses for

more than two decades. It is expected to keep running operating

surpluses until 2018, but it will actually expand for 10 more years

because of the interest it receives from Treasury bonds.

 

Mr. Bush's Social Security campaign is also likely to include

assertions that the trust fund is " empty, " because the government has

already used the annual surpluses to finance its operating deficits.

 

The trust fund is " all trust and no fund, " wrote Rich Tucker, an

analyst at the Heritage Foundation, a conservative research group that

supports Mr. Bush's approach.

 

But analysts say it is wrong to imply that the trust fund will not pay

benefits, because the government could avoid payment only by

defaulting on its Treasury bonds, in effect declaring bankruptcy. The

consequences of that would be so catastrophic for the government and

world financial markets that few economists consider it plausible.

 

Most analysts, including many who support Mr. Bush's approach, contend

that Social Security's problems can be eliminated by changing benefit

formulas and taxes.

 

Professor Diamond at M.I.T. and Peter Orszag, a former Clinton

administration official and a senior economist at the Brookings

Institution, have proposed a plan that would gradually increase

payroll taxes and slowly trim benefits promised to future retirees.

Payroll tax rates would rise from 12.4 percent today to about 15

percent in 2075, according to the nonpartisan Congressional Budget

Office. Benefits for people retiring 100 years from now would be

higher than for people today, even after inflation, but about 23

percent below the amounts promised under today's formulas.

 

The chief actuaries at the Congressional Budget Office and the Social

Security Administration each concluded that the plan would restore

solvency well beyond 75 years.

 

White House officials privately concede that the centerpiece of Mr.

Bush's approach to Social Security - letting people invest some of

their payroll taxes in private accounts - would do nothing in itself

to eliminate the long-term gap.

 

The real savings would be realized by reducing future benefits, most

likely by abandoning the practice of setting a person's initial

benefit as a fixed percentage of preretirement earnings. Benefits

would keep pace with inflation, but analysts estimate that benefits

for a middle-income worker who retires in 2065 would be about 50

percent lower than the benefits promised under today's law.

 

" We simply cannot solve the Social Security problem with Personal

Retirement Accounts alone, " wrote Mr. Wehner, the White House

political strategist, in his memorandum last week. " If the goal is

permanent solvency and sustainability - as we believe it should be -

then Personal Retirements Accounts, for all their virtues, are

insufficient to that task. "

 

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