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PORTSIDE  September 2010, Week 4

PORTSIDE September 2010, Week 4

Subject:

Social Security Con Artists Are Lying About the Trust Fund

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Date:

Fri, 24 Sep 2010 20:51:27 -0400

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Social Security Con Artists Are Lying About One of the
Strongest Arms of the Program

By Joshua Holland, AlterNet
Posted on September 23, 2010
http://www.alternet.org/story/148260/

You've no doubt heard about how the Social Security
Trust Fund is projected to run out of cash a few
decades down the line. What you may not have heard is
that it might not run out at all; in fact, it may well
continue to back-stop the popular program indefinitely.

If you want to know just how contrived the Social
Security "crisis" really is, consider that the trust
fund, created by a bipartisan act of good governance
that's almost inconceivable today, is doing exactly
what it was designed to do, and more so. It is
nonetheless cited by "entitlement" fearmongers as
evidence that the program is unsustainable, a fiscal
trainwreck just waiting to happen.

In fact, the opposite is true. In 1983, when we still
had a somewhat functional Congress that was capable of
tackling real problems facing the nation, Democrats and
Republicans got together to address a very modest
shortfall in funding for the Social Security system.
But they went a step further. They thought long-term,
raised payroll taxes and in doing so created the Social
Security Trust Fund, a surplus that could be drawn down
as the baby-boomers reached retirement age. Today, with
$2.5 trillion worth of assets, the fund is so fat it's
projected to continue growing on just its own interest
decades into the future.

The "reforms" were a victory for neither side --
Republicans agreed to a tax hike on businesses, and
Democrats accepted a regressive tax on working people,
while giving up an issue they had used to win 26 House
seats in the 1982 midterms.

But it was a far-sighted act of governance. At the
time, the oldest boomers were 37 years old, and the
youngest were just 19. In 2037, when the fund is
projected to be tapped out, the oldest baby boomers
still kicking will be 94 and the youngest will be 83
years old. Not to be morbid, but given that the life
expectancy of Americans is 78.1 years today, that means
that the "glut" of baby-boomers receiving benefits will
be receding in the nation's rearview mirror. In other
words, the trust fund will have done exactly what it
was intended to do.

What the media never mention is that, according to the
latest Social Security Trustees' report (PDF), under an
alternative "low-cost" projection, the fund might just
continue to grow larger throughout the period of the
trustees' 75-year projection, increasing from 3.5 times
the cost of a year's benefits today to more than 6
times the annual benefits projected for the year 2084.

The trustees caution that it's an absolute best-case
scenario, and they also offer a "high-cost" alternative
that paints a far bleaker picture than the
"intermediate" assumptions used in the headlines. But
the context that is largely missing from the debate is
that those official, intermediate assumptions that lead
to so many reporters making definitive statements about
the fund running out in 2037 are very, very
conservative.

In his analysis of the 1998 report (the assumptions are
virtually unchanged, but look a bit better today),
economist Doug Henwood noted, "At every turn there's a
bearish assumption in the Trustees' numbers." He looked
at the projections for population growth, the growth of
the workforce, the age of the workforce, and concluded
that some of the trustees' projections would represent
a "violation of all historical precedent." As I write
in The Fifteen Biggest Lies About the Economy, the
Social Security trustees' intermediate projection
"assumes that during the next 75 years the U.S. economy
will grow by half the rate of the last 75 years. That
may well prove to be the case (and there are certainly
good reasons for using conservative estimates), but
it's an ahistoric assumption."

If we were to use a different set of assumptions in our
projections, we would see a "problem" that can be
addressed with any number of relatively painless fixes,
none of which need to be implemented now. Americans
currently pay Social Security taxes on the first
$106,800 they earn. But because the distribution of
income has skewed toward the wealthy for the previous
three decades, the amount of income falling under the
cap has shrunk-in 1983, when the payroll tax was
tweaked, 90 percent of all income fell below the
cutoff; by 2006, that number had fallen to 84 percent
(PDF).

Eliminating the cap entirely would instantly close the
Social Security "gap" over the long run, and then some.
Yet according to economist John Irons, even just
rejiggering the number so it once again captured 90
percent of Americans' wages would narrow three-quarters
of the long-term "shortfall." And in the process, only
6 percent of the population-the highest-earners-would
feel any tax bite at all.

The larger point, of course, is that we have $2.5
trillion set aside to keep our older citizens from
living in squalor during their Golden Years. Americans
should be happy about that, and feel secure in the
knowledge that Social Security will be there for them
when they need it. After all, even if the trustees'
pessimistic intermediate assumptions should come to
pass and the government took absolutely no action to
shore up the program's finances over that very long-
term, Social Security would still be able to pay 75
percent of "scheduled benefits" for the entire 75-year
projection, right through 2084. (And after 2037, those
bennies would still be higher, adjusted for inflation,
than what retirees get today.)

But that's not the case; polls show that many younger
workers aren't confident that the benefits they've been
promised will be there when they hit retirement age
(one ABC News/Washington Post poll conducted in 2004
found that only 7 percent of people in their 20s and
just 15 percent of those between 30 and 40 expected to
get full benefits when they retire). Call it a
testament to conservative propaganda (├╝ber-wealthy
activist Pete Peterson has sunk a billion dollars of
his own money into the effort), specifically the false
narrative that the trust fund has been looted, and is
left with nothing but "worthless IOUs." Ron Johnson, a
wealthy self-financed candidate facing Wisconsin
Senator Russ Feingold, recently aired an ad pushing the
lie. "Politicians of both parties raided the Social
Security trust fund of trillions," Johnson solemnly
tells viewers, "and left seniors an IOU. They spent the
money. It's gone."

In the real world, the Social Security Trust Fund has
trillions in interest-bearing Treasury Bills, which are
essentially the same as those sold off to private
investors and considered among the safest places to put
one's money. The $2.5 trillion in special issue T-bills
in the fund are backed by the full faith and credit of
the United States government, just the same as the
other $11 trillion in public debt outstanding, almost
$9 trillion of which are sitting in investors'
retirement accounts. They earned 5.1 percent interest
in 2008, and 4.8 percent last year.

The kernel of truth here is that conservatives have
long labored to de-link taxes and spending in the minds
of the American public, promising they could deliver an
endless series of tax cuts without gutting the public
services that people have come to expect from the
government. Economist Paul Krugman described the result
of the Right's "tax cut crusade," as a "fundamental
mismatch between the benefits Americans expect to
receive from the government and the revenues government
collects."

So, the truth is that the government does routinely
spend more than it takes in -- it's only broken even or
run a surplus in 12 of the 70 years since entering
World War II (and since the establishment of the trust
fund, we only took in as much as we spent for a few
years during Bill Clinton's second term). The
government makes up that shortfall by issuing debt.
Whether it sells that debt to your pension fund, the
Chinese Central bank or the Social Security Trust Fund
doesn't make a lick of difference.

But if the system isn't tweaked at some point over the
next few decades, those debts will eventually have to
be paid off in order to give retirees their promised
benefits. And this gets to the nub of the matter: if
benefits aren't trimmed and payroll taxes aren't
increased, the Social Security "shortfall" will have to
be paid out of general revenues, which are financed by
taxes that are, on average, far more progressive than
payroll taxes. So the rush to "fix" a system that is
anything but broken is at least in part motivated by
fears among the wealthiest Americans that their taxes
may rise, disproportionately in their view, some 30
years down the road.

Just how effective is the corporate Right's campaign to
terrify the public into believing in their all-
encompassing "entitlement crisis"? So much so that the
standard rallying cry among even savvy progressives has
been that we need to "strengthen Social Security now
for the future." The truth is we don't need to do
anything anytime soon; while the $5.4 trillion
"shortfall" projected over the next 75 years is a scary
number, it represents just 0.7 percent of the country's
total economic output over that period, according to
the trustees' assumptions. And the annual gap can be
fixed anytime. Even if nothing at all were done before
then, the program's 2084 shortfall would represent only
1.4 percent of our economic output (in a country that
currently has the 27th lowest tax burden out of the 30
wealthy countries of the Organization of Economic
Cooperation and Development).

These are all things to keep in mind when digesting the
granny-bashing blather emanating from Washington. And
consider, too, that the entirety of the 75-year "Social
Security gap" is equal to the value of extending George
Bush's tax cuts for the wealthiest 2 percent of
Americans. As the Center for Budgets and Policy
Priorities pointed out, "Members of Congress cannot
simultaneously claim that the tax cuts for people at
the top are affordable while the Social Security
shortfall constitutes a dire fiscal threat." But that's
just what they're doing.

Joshua Holland is an editor and senior writer at
AlterNet. He is the author of The 15 Biggest Lies About
the Economy (and Everything else the Right Doesn't Want
You to Know About Taxes, Jobs and Corporate America).
Drop him an email or follow him on Twitter.

c 2010 Independent Media Institute. All rights
reserved.

_____________________________________________

Portside aims to provide material of interest
to people on the left that will help them to
interpret the world and to change it.

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