The Trillion Dollar Social Security Hustle
Yesterday may have brought the first salvo in the fight for Social Security. From Yahoo! News:
The
White House said on Monday for the first time that Bush's plan to add personal retirement accounts to Social
Security would be financed in part by new government
borrowing that could top $1 trillion.
Bush
has made reform of the U.S. retirement program a top priority in his
second term and will push for creating private accounts in a meeting
later in the day with top congressional leaders.
What's all this worth to the American public? From that same article:
A
recent analysis by the White House Council of Economic Advisers found
that tapping the bond markets to pay for private accounts would
increase the nation's debt-to-GDP ratio by 23.6 percentage points
by 2036.
Under
this scenario, the debt held by the public would increase by as much as
$4.7 trillion. But the new government bonds would be repaid 20 years
later, eliminating Social Security's unfunded liability while reducing
the tax burden in the long term, advocates said.
“[Bush], at this point, has not endorsed a specific plan,” McClellan said.
But
Republicans say the Bush administration favors a plan that would allow
workers to voluntarily redirect 4 percent of their payroll taxes up to
$1,000 annually to a personal account.
So…
increasing the nation's debt to the point where the liability may
damage our ability to repay the treasury bonds that make up the current
Social Security Trust Fund – all for the possiblity of “up to” $1,000
annually in a personal account – assuming that this “up to” will
only occur for those earning in excess of the FICA cap of around
$86,000. (For an idea of what risks excessive borrowing creates, see this article from today's Economist.)
Is risking the entire system really necessary? Not really, according to an column today from Paul Krugman:
Projections
in a recent report by the Congressional Budget Office (which are
probably more realistic than the very cautious projections of the
Social Security Administration) say that the trust fund will run out in
2052. The system won't become “bankrupt” at that point; even after the
trust fund is gone, Social Security revenues will cover 81 percent of
the promised benefits. Still, there is a long-run financing problem.
But
it's a problem of modest size. The report finds that extending the life
of the trust fund into the 22nd century, with no change in benefits,
would require additional revenues equal to only 0.54 percent of G.D.P.
That's less than 3 percent of federal spending – less than we're
currently spending in Iraq. And it's only about one-quarter of the
revenue lost each year because of Bush's tax cuts – roughly
equal to the fraction of those cuts that goes to people with incomes
over $500,000 a year.
Given
these numbers, it's not at all hard to come up with fiscal packages
that would secure the retirement program, with no major changes, for
generations to come.
As Bill Clinton once said: “Mend It, Don't End It”.
So if
the problem is really minor, what's really pushing this political
emergency? Simple, really – it's false market populism hidng a Trillion-Dollar Hustle:
With
our Social Security money entrusted to Wall Street, its
priorities will become the nation's priorities; its demands for
deregulation, de-unionization, low wages, and generous “stimulus”
packages whenever the Dow looks a little weak will be recast as
the demands of little old ladies in Beardstown and blue-collar
workers in Providence. Who would dare to legislate for higher
minimum wages, say, or stricter protections for arctic wildlife,
when such a move could be construed as an attack on the nation's
beloved retirees? Although we can only glimpse the possibilities
now, this mind-boggling reconfiguration of economic politics is the
real promise of privatization, the thing that makes it worth the
insane gamble: instantly, privatization would reverse the
polarity of the famous “third rail of American politics,”
transforming Social Security from the bane of the business
community into its most potent weapon, an argument-ending current
that would crackle through the fingers of every P.R. man and
corporate lobbyist. Touch Wall Street and you're dead.
To
follow a theme from John Drury's earlier post, is the Social Security
Trust Fund really worth gambling with for little to no real “upside” –
but the potential for disastrous “downside”? It sure is to the
Wall Street financiers that promise (yet again) untold wealth and
prosperity – we just have to place our faith in the market gods.
It would also transform Social Security into an anti-Labor club that could be the weapon used to justify cheap labor and globalization policies – anything to boost the stock price!
Another thing to keep in mind: Social Security has been one of the most successful government programs ever created.
This was the legacy of our parents and grandparents – what is going to be the legacy of the current generation?
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