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08/16/2001

Social Security, Part II

In our discussion last week, we delved into the initial
recommendations of the Bush Social Security Commission. You
may want to refer back to that piece before reading this one.

Over the past 18 months, I have personally built up a file of
various opinion pieces on the subject of Social Security.
Following are some of the common viewpoints from both sides
of the debate.

-----

Two major points need to be kept in mind.

First, under existing projections, it is expected that by 2016
Social Security will begin to pay out more in benefits than it
takes in.

Second, by 2038 the Social Security Trust Fund will run out.

Which leads us to the issue of the trust fund. [For a formal
definition, as presented by the Bush Commission, see part one.]

Former cabinet secretary Pete Peterson: "The trust fund is an
accounting fiction; this money has already been spent. Its so-
called assets are nothing but a stack of I.O.U.''s from the
Treasury."

Jane Bryant Quinn: "The trust fund is no joke. It''s a promise to
pay, secured by Treasury securities, which in turn are secured by
taxpayers. The government has to use the money currently
pledged for whatever we all decide Social Security benefits
should be."

Quinn: "Some say after 2016, when we begin dipping in to the
trust fund, we''ll have to raise taxes, chop benefits or cut deeply
into other spending. But the government could borrow some of
the money. We''ve run up debt before (like on military
spending), we can ''reborrow'' in the future to get past the boomer
retirement hump."

[Remember with the trust fund that payroll taxes keep rolling in,
even after 2037. Under current projections, those taxes would
finance about 72% of current benefits. It doesn''t then take huge
adjustments in taxes and benefits to close the gap.]

Following are some general comments from all sides of the issue.

Economist Paul Krugman:

On use of the current surplus: "Last year the government paid
off more than $200 billion in debt to the public, largely because
of the Social Security surplus. And lower debt implies lower
future interest payments, which means that the government can
pay more in benefits without raising taxes or cutting spending."

"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."

"The (Bush 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 the payroll tax increase was put through), an
increase whose purpose was to build up the trust fund that the
commission now says isn''t real."

Federal Reserve Chairman Alan Greenspan, speaking to
Congress recently on the composition of the trust fund:

"Are (the assets) ultimate claims on real resources?...The answer
is, yes."

Economist Kevin Hassett:

On the principles of redistribution. "The most important fact is
that low-income individuals have shorter life expectancies. An
individual who dies at 70 receives half as many Social Security
checks as a person who dies at 75."

[Editor: So? Whose problem is that?]

"Social Security''s spousal benefit provides payments to spouses
with no work history based on the earnings history of one who
did work. Poor people are much more likely to be single or
divorced and not qualify for it."

[Editor: Yeah, so?]

"Ironically, Social Security was so named because it was
intended to reduce uncertainty in people''s lives. An insolvent
system does the opposite. Social Security insolvency is probably
the greatest retirement risk facing most Americans today."

"The system can remain in balance only if mortality,
productivity, immigration, fertility and countless other factors
turn out just right. If somebody cures cancer, for example -
adding years to life expectancy - the system we fix today will be
broken again."

Economist Robert Samuelson (2000):

"No one thinking about the nation''s future could in good
conscience wave away higher retirement ages."

"What should be said plainly is that retirement ages ought to be
raised gradually and federal benefits and tax breaks for retirees
should be made less generous, especially for the well-to-do."

"Current (costs) are socially unjust. Many poorer and younger
workers are supporting richer retirees. The generational contract
needs to be rewritten to reflect advances in health and well-
being. The retirement age should go to 68 or perhaps 70."

Robert Samuelson just two weeks ago:

"What Americans won''t admit is that Social Security and
Medicare no longer simply aid the needy. They also subsidize
the retirement of millions of people who are fairly healthy and
financially well off. The young are increasingly compelled to
underwrite the vacations of the old. As baby boomers move into
their sixties, this will become more widespread. Baby boomers
will flaunt their youth and energy, and their huge numbers will
make it even harder for politicians to discuss what everyone can
plainly see.

"...I believe that, as a generation, we have a responsibility to
restrain our selfishness and to temper the burden on our
children."

Some other thoughts. As Laura D''Andrea Tyson (former
Clinton official) says, how can you make financial projections
40-75 years out, and then base policy on it? These figures being
floated around today are bogus. And most experts would agree
they drastically underestimate growth.

Between this piece and last week''s, I have given you all the
necessary talking points one needs to carry on an intelligent
discussion on this crucial issue. But aside from a snide remark or
two, I have purposefully omitted my own opinion. For what it''s
worth, I will divulge that in my "Week in Review" column on
8/25.

Sources:

The opinions noted above were largely taken from op-ed pieces
in the New York Times, the Washington Post, the Wall Street
Journal, Newsweek, and Business Week.

Brian Trumbore


AddThis Feed Button

 

-08/16/2001-      
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08/16/2001

Social Security, Part II

In our discussion last week, we delved into the initial
recommendations of the Bush Social Security Commission. You
may want to refer back to that piece before reading this one.

Over the past 18 months, I have personally built up a file of
various opinion pieces on the subject of Social Security.
Following are some of the common viewpoints from both sides
of the debate.

-----

Two major points need to be kept in mind.

First, under existing projections, it is expected that by 2016
Social Security will begin to pay out more in benefits than it
takes in.

Second, by 2038 the Social Security Trust Fund will run out.

Which leads us to the issue of the trust fund. [For a formal
definition, as presented by the Bush Commission, see part one.]

Former cabinet secretary Pete Peterson: "The trust fund is an
accounting fiction; this money has already been spent. Its so-
called assets are nothing but a stack of I.O.U.''s from the
Treasury."

Jane Bryant Quinn: "The trust fund is no joke. It''s a promise to
pay, secured by Treasury securities, which in turn are secured by
taxpayers. The government has to use the money currently
pledged for whatever we all decide Social Security benefits
should be."

Quinn: "Some say after 2016, when we begin dipping in to the
trust fund, we''ll have to raise taxes, chop benefits or cut deeply
into other spending. But the government could borrow some of
the money. We''ve run up debt before (like on military
spending), we can ''reborrow'' in the future to get past the boomer
retirement hump."

[Remember with the trust fund that payroll taxes keep rolling in,
even after 2037. Under current projections, those taxes would
finance about 72% of current benefits. It doesn''t then take huge
adjustments in taxes and benefits to close the gap.]

Following are some general comments from all sides of the issue.

Economist Paul Krugman:

On use of the current surplus: "Last year the government paid
off more than $200 billion in debt to the public, largely because
of the Social Security surplus. And lower debt implies lower
future interest payments, which means that the government can
pay more in benefits without raising taxes or cutting spending."

"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."

"The (Bush 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 the payroll tax increase was put through), an
increase whose purpose was to build up the trust fund that the
commission now says isn''t real."

Federal Reserve Chairman Alan Greenspan, speaking to
Congress recently on the composition of the trust fund:

"Are (the assets) ultimate claims on real resources?...The answer
is, yes."

Economist Kevin Hassett:

On the principles of redistribution. "The most important fact is
that low-income individuals have shorter life expectancies. An
individual who dies at 70 receives half as many Social Security
checks as a person who dies at 75."

[Editor: So? Whose problem is that?]

"Social Security''s spousal benefit provides payments to spouses
with no work history based on the earnings history of one who
did work. Poor people are much more likely to be single or
divorced and not qualify for it."

[Editor: Yeah, so?]

"Ironically, Social Security was so named because it was
intended to reduce uncertainty in people''s lives. An insolvent
system does the opposite. Social Security insolvency is probably
the greatest retirement risk facing most Americans today."

"The system can remain in balance only if mortality,
productivity, immigration, fertility and countless other factors
turn out just right. If somebody cures cancer, for example -
adding years to life expectancy - the system we fix today will be
broken again."

Economist Robert Samuelson (2000):

"No one thinking about the nation''s future could in good
conscience wave away higher retirement ages."

"What should be said plainly is that retirement ages ought to be
raised gradually and federal benefits and tax breaks for retirees
should be made less generous, especially for the well-to-do."

"Current (costs) are socially unjust. Many poorer and younger
workers are supporting richer retirees. The generational contract
needs to be rewritten to reflect advances in health and well-
being. The retirement age should go to 68 or perhaps 70."

Robert Samuelson just two weeks ago:

"What Americans won''t admit is that Social Security and
Medicare no longer simply aid the needy. They also subsidize
the retirement of millions of people who are fairly healthy and
financially well off. The young are increasingly compelled to
underwrite the vacations of the old. As baby boomers move into
their sixties, this will become more widespread. Baby boomers
will flaunt their youth and energy, and their huge numbers will
make it even harder for politicians to discuss what everyone can
plainly see.

"...I believe that, as a generation, we have a responsibility to
restrain our selfishness and to temper the burden on our
children."

Some other thoughts. As Laura D''Andrea Tyson (former
Clinton official) says, how can you make financial projections
40-75 years out, and then base policy on it? These figures being
floated around today are bogus. And most experts would agree
they drastically underestimate growth.

Between this piece and last week''s, I have given you all the
necessary talking points one needs to carry on an intelligent
discussion on this crucial issue. But aside from a snide remark or
two, I have purposefully omitted my own opinion. For what it''s
worth, I will divulge that in my "Week in Review" column on
8/25.

Sources:

The opinions noted above were largely taken from op-ed pieces
in the New York Times, the Washington Post, the Wall Street
Journal, Newsweek, and Business Week.

Brian Trumbore