In tonight's State of the Union address, President Bush will make a strong push for his plan to privatize Social Security. Before he does, however, we would do well to review the facts of Social Security as they now stand.
Fact #1 - The federal government has historically run a cash-flow surplus on Social Security. That means that it has collected far more tax-dollars than it gave back in benefits. Instead of returning our tax-dollars, our government smartly looked longterm and set the money aside in a trust fund to be used if this surplus ever ran out.
Fact #2 - This surplus has been used by the government to fund the deficits in our Medicare program. Benefits given by Medicare spending have been higher than revenues brought in by taxes. The government has been borrowing money from the Social Security trust fund to keep Medicare from running out of money.
Fact #3 - If the Social Security trust fund is ever depleted, the federal government could still pay 80% of benefits to retirees drawing Social Security.
Contrary to what the Bush Administration is saying, Social Security will not go bankrupt any time soon. Bush has been floating a 2018 figure, though I'm sure where he's gotten that from (I'm open to comments). The Congressional Budget Office has said that the trust fund will run out by 2052, but keep in mind that the government will still be able to pay 80% of benefits after that date.
One thing our President has failed to mention is how much Wall Street will benefit from the privatization of Social Security. Some of our tax-dollars will be diverted from going straight to retirees, to being invested in the stock market. Which would be a boon for investment firms and the mutual fund industry, who will make money on the accounts by service fees regardless of whether or not the accounts actually make money.
It must be noted that there is no guarantee that moneys diverted to the stock market will find a greater rate of return than if they were left in the Social Security trust fund. If our economy keeps clicking, they might. Emphasis on might. If we run into trouble due to inflation, federal budget deficits, public credit spending, American imports far outweighing exports, or a combination of the above, our economy could be in for a major rough spot, something akin the Great Depression of the 1930s.
Which is why Social Security needs to be there. If we privatize accounts, and the economy tanks, there's no safety net for the low-income and middle-class elderly. If we keep Social Security as is, Americans won't be hit quite as hard. This isn't to say that Social Security has no problems. It does. But other options should be considered, rather than overhauling the whole system.
President Bush has repeatedly said that he will not borrow the $2 trillion it would take to privatize Social Security. Diverting funds from Social Security into private accounts for young Americans leaves a shortfall in funds needed by current and future retirees. That's where the $2 trillion comes in. Borrowing the money would be a disaster, and Bush recognizes that. But he's also said he will not raise taxes to cover the shortfall either. In fact, Bush hasn't said a word about how he plans to fund his privatization plan.
In his road map to a so-called "ownership society," all President Bush has left us with so far is the ownership of trillions of dollars worth in debt.
But here's the funny thing -- there is an actual entitlements crisis, but not with Social Security. The real crisis is with Medicare and Medicaid, which are borrowing money from Social Security in order to stay afloat. That should be where the focus of our attention lies in the short-term. Health care costs, due to a number of factors, have skyrocketed over the past 20 years. And government programs that partially cover health costs for the poor and elderly are running out of money.
But no one wants to talk about that. For one, because Medicare and Medicaid only benefit the low-income, who have little voice in Washington politics (while everyone, wealthy or not, receives Social Security). But also because there's no easy way out of Medicare's deficits, other than by raising taxes. Which is why the subject is so taboo. In our current political climate, talk of raising taxes is akin to legislative suicide.
So instead, we debate Social Security. Which isn't in crisis, but sure as heck makes for better political bantering, and also helps score major points with constituents.
Yeah for politicians.
Wednesday, February 02, 2005
Posted by jonny at 5:02 PM