Is it possible that the Democrats are overlooking President Bush’s real game plan for Social Security? Not that they’re wrong in charging him with fiscal recklessness.
As the economy weakens, the president’s $1.3 billion tax cut is bound to erode the budget surplus that is intended to cover the retirement of the baby boom generation. But that may be exactly what the president is out to do. Why should he seek to bust Social Security? Because he and his new Social Security commission have their sights set on privatizing the system.
If they succeed, they will divert billions of dollars into the flagging stock market. The first step toward doing that is to drain the surplus so they can claim the system is insolvent.
Everything we’ve heard about the impending bankruptcy of Social Security has been skewed to serve the interests of the brokerage industry and such right-wing sources as the Cato Institute and the Concord Coalition. How do anti-entitlements conservatives make their case against Social Security?
By selecting growth and discount rates that are meant to panic the public into entrusting retirement money to the same Wall Street culprits who gave us the dot-com debacle.
Most frighteningly, they warn that the United States government will be unable to redeem the treasury bonds in the Social Security trust fund – “mere pieces of paper,” as some critics call them. One is left to wonder how the treasury would find a way to default on just those bonds and not all of its bonds in private portfolios, a catastrophe that would create global chaos.
Far right forces have been flooding the press with ideologically-biased projections about Social Security since the days of the Reagan administration. Helped by media always in search of “sky-is-falling” sensationalism, they have done a superb job of obfuscating the issue. It takes a bit of a history lesson to undo the confusion.
Social Security underwent its last major adjustment in 1982 when Alan Greenspan designed a formula to earmark funds for the retirement of the baby boomers through about 2030.
The budget surplus that is now such a political football was largely generated by that fix. Of course, no fix lasts forever. As boomers retire, a new demographic contingency emerges: increasing life expectancy. Current levels of taxation won’t cover the entire life expectancy of baby boomers, which may reach age 90. But there are several conventional ways to adjust for that.
As financial columnist Jane Bryant Quinn observes, “Contrary to popular belief, Social Security isn’t going bankrupt. ... The problems are fixable, with incremental changes in benefits, taxes and, eventually, borrowing.”
Scores of experts have reached the same conclusion. (See, for example, “Social Security: The Phony Crisis,” a superbly competent study by Dean Baker and Mark Weisbrot.)
We might raise the 12.4 percent Social Security payroll tax (paid half-and-half by employers and employees) to about 14 percent. We could do that gradually by raising the tax by one-tenth of one percent over a period of several years.
Or we could combine that with lifting the $80,400 cap on earnings taxable for Social Security and perhaps with making capital gains taxable for Social Security.
Whenever you hear how “painful” it will be to save Social Security, note the extent of that pain: an imperceptible rise in the payroll tax to pay for the many extra years of life modern medicine has given us. That’s all it takes.
Only those who oppose any increase in taxes can see that as intolerable.
But by opting for tax cuts and star-wars spending that will devour the surplus, the Bush administration could be angling to make all these fixes impossible.
The phony Social Security crisis would then become a real one – especially if the economy continues to falter and unemployment mounts.
The president likes to say the surplus belongs to the people. That’s true.
And so do obligations like the national debt and the cost of entitlements. The surplus is the nest egg Americans have quite responsibly set aside over the past 20 years to provide for the Social Security costs of the boomer generation. Squander that money, and dire predictions about the future of the system could come true.
Theodore Roszak is a professor in the History Department at Cal State Hayward. His latest book is “Longevity Revolution: As Boomers Become Elders” (Berkeley Hills Books.)