Friday, November 19, 2004

Getting a little serious now

I might as well talk about Social Security since Kevin Drum decided to. Among the things Kevin talks about are the difference between the solvency dates of 2017 and 2042. Kevin says:

Basically, he takes issue with Edith Fierst's contention that Social Security is solvent until about 2042, correctly pointing out that payouts start to exceed taxes in about 2017. The only way Social Security stays solvent between 2017-2042 is by cashing in the treasury bonds it's been piling up in the trust fund since 1983. ... But here's the thing: it doesn't matter. Maybe the trust fund was a good idea, maybe it wasn't. The fact is that it exists, and the federal government is not going to default on treasury bonds. Those bonds are going to be redeemed, they are going to be used to fund Social Security payments, and the money to redeem these bonds is going to come from the general fund — i.e., income taxes. That decision was made two decades ago and there's no way to undo it now.

So that's why Fierst is correct to use the 2042 date. She's assuming that the treasury won't default on the trust fund bonds, and in that she's quite correct.

But Andrew is also quite correct to say that we're going to have to increase income taxes (or run a bigger deficit) in order to redeem those bonds. There's no way around that.

So Social Security is solvent until 2042, we'll just have to raise income taxes to cover the Treasury bonds to do it, which we will because they are Treasury bonds.

Out of all the ideas to "fix" Social Security, the worst by far is privatization. Let me change that, the worst is the partial-privatizations plan Bush seems to be offering. Privatization is where you take the payroll taxes you and I pay and send them to a "private" account. As per the ownership society, the government is not in charge of those private accounts, it's more or less at the mercy of hte stock market.

The best reasoning I have heard so far for privatization is from former Treasury Secretary John O'Neill. He says that over any 20-year period, the stock market would outperform the government accounts. Which is true of the market of the past. But the market in the global economy is more reactive the economies of other countries. If our economy goes into a tailspin when you retire, your private account will probably not be worth much.

Not to mention the initial cost. Social Security works because the payroll taxes I pay today go to my stepdad and grandma's Social Security checks today. My kids and grandkids will pay for my retirement. If all of a sudden my payroll taxes went to my own account, the money that current retirees get stops flowing. But they still get a check, so the money has to come from somewhere. And we're talking about a trillion dollars and no I didn't hit the t key by mistake. Partial-privatization would cost even more. So upfront, we need an extra trillion dollars to privatize Social Security, which is why it is a bad idea.

No, there is a better answer. It's not quite so politically acceptable as privaatization, but it's really not as bad as all of that. The answer is a modest cut in benefits and a modest rise in payroll taxes. I know, raise taxes and cut benefits, that'll never pass. But it is probably the best solution and it is what people like AlanGreenspan have been advocating for two decades. Every blue ribbon committee for thirty years has arrived at the same conclusion, it's just no one is willing to risk political suicide to fix Social Security.

We're not even talking about big increases or decreases, either. Pennies more from everyone, and maybe some exploration of creating a bracket above the $87,000 mark. Did you know that millinaires pay $87,000 in payroll taxes? So do multi-millionaires. So do billionaires. I'm sure Bill Gates and Sam Walton's kids can spare a little more than $87,000 a year to help everyone. And as for benefit cuts, people my age will probably have 401k plans up the yin yang, so we'll rely on Social Security less anyway. It's a very sober and reasoned solution that's just not acceptable politically.

That needs to change and Democrats are just the group to change it. Social Security is government's promise to its citizens that they will always have a safety net. As long as there is a US Government, you will get your Social Security check every month. It was the New Deal Democrats and FDR who finally instituted Social Security and it should be the New Democrats who make sure it is safe for another hundred years.


Post a Comment

<< Home