SYNOPSIS: Social Security may be in crisis, but not with these numbers
I knew that the commission on Social Security reform appointed by George W. Bush would produce a slanted report, one designed to bully Congress into privatizing the system. But the draft report released last week is sheer, mean-spirited nonsense.
The commission, in an attempt to sow panic, claims that Social Security is in imminent peril — that the system will be in crisis as soon as 2016. That's wildly at odds with the standard projection, which says that Social Security reserves will last until 2038. And even that projection is based on quite pessimistic assumptions about future economic growth and hence future payroll tax receipts. If you use more optimistic assumptions — say, the assumptions in the budget forecasts that were used to justify Mr. Bush's tax cut — the system will still be financially sound in 2075.
So how did the commission reach its pessimistic conclusion? Through a truly Orwellian exercise in doublethink — the art of believing two mutually contradictory things at the same time.
It's true that in 2016, according to (pessimistic) projections, benefit payments will start to exceed payroll tax receipts. By then, however, the Social Security system will have accumulated a multitrillion-dollar "trust fund." Just as a private pension fund uses earnings on its assets to pay benefits, the Social Security system can use earnings from this trust fund to pay benefits. And that trust fund will extend the life of the system for decades, perhaps indefinitely.
But the commission declares that these accumulated assets aren't "real," and don't count as resources available to pay future benefits. Why? Because they are invested in government bonds — perfectly good assets when they are accumulated by private pension funds but worthless, says the commission, when accumulated by a government agency.
Does this make any sense? There is a school of thought that says that Social Security shouldn't have a separate budget, that Social Security receipts should be regarded simply as part of general revenue, and outlays as part of general expenditure. But in that case it's hard to see why we should get worked up about 2016: who cares if the payroll tax, which is only one of many taxes, collects less money than the government spends on retirement benefits, which are only one of many government expenses? Social Security benefits can be paid out of the general budget — a transfer of revenue that is clearly justified if payroll tax receipts have meanwhile been used to pay off the national debt, releasing large sums that would otherwise have been consumed by interest payments.
Alternatively, you could say that for political reasons it's important that Social Security have its own separate account. But in that case, we should count government bonds in the trust fund as real assets, just as we would if Social Security were a private pension fund. (Here's a proposal: let's launder the trust fund by putting it in private banks, which then buy government bonds. Will that make the assets "real"?)
So the commission is trying to have it both ways. When Social Security runs surpluses, it doesn't get any credit because it's just part of the government. But when it runs deficits, Social Security is on its own. This twisted logic in effect expropriates all of the extra money workers have paid into the system since 1983, when Senator Daniel Patrick Moynihan, among others, pushed through an increase in payroll taxes — an increase whose purpose was to build up the trust fund that the commission, co-chaired by Mr. Moynihan, now says isn't real.
And how big will the Social Security deficit be once the trust fund has been expropriated? The commission says 37 percent of payroll tax receipts, which sounds immense; but that's only about 2 percent of G.D.P. That's an interesting number: it's about what the federal government now pays in interest on its debt — the debt that Social Security surpluses are being used to pay off. Oh, and there's another budget item that's about the same size as the putative Social Security shortfall: the Bush tax cut, which will eventually reduce revenue by about 1.7 percent of G.D.P.
There is a case for reforming Social Security; there is even a case for privatization. But we can't have a meaningful debate about reform unless the parties to the debate are willing to discuss the issues honestly. And the members of the commission, including Mr. Moynihan, have just disqualified themselves.
Originally published in The New York Times, 7.22.01