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A Snow Job on Social Security

by Dave Lindorff Thursday, Mar. 24, 2005 at 6:59 PM
dlindorff@yahoo.com

Bush’s stump campaign to sell his divide-and-conquer plan for wrecking Social Security has been a failure. So now he’s sent out his Treasury Secretary to try crying “wolf” in hopes of scaring retirees and workers about the security of the system. It’s WMDs all over again.

With Bush's Social Security wrecking scheme on the ropes in the face of widespread public distrust of his intentions and his "facts," the inevitable scare stories are now coming out of the politically manipulated Social Security Administration itself.

The latest--the economic equivalent of those reports about mobile germ and chemical warfare factories in Iraq that surfaced in the drive toward an invasion of Iraq--is a new report from the Security Trust Fund Board of Trustees, claiming that things have somehow gotten worse and that the Fund will face "insolvency" in 2041, a year earlier than an earlier Social Security projection had claimed. As well, the date at which the Administration predicted that Social Security would have to start drawing down the accumulated Trust Fund would be moved forward a year to 2017.

This scare story comes, oddly, after predictions by the same agency's actuaries only a few months ago that relatively robust economic performance had actually pushed those two dates back a few years.

The whole scare story, which was loudly trumpeted by the Associated Press with a misleading headline screaming "Social Security Set to Go Broke in 2041," is a political scam. The Trust Fund Board is chaired by Bush Treasury Secretary John Snow, a political charlatan who immediately grabbed the opportunity to claim that the new projection meant that absent some major reform of the system, either payroll taxes would have to be raised 3.5 percent or benefits would have to be cut by 22 percent.

Left unsaid both by Snow and by the AP is that the latest prediction is based upon a wholly unreasonable forecast for U.S. economic growth over the next decade and the next four decades. In order to arrive at such a dire projection for the fund, Snow and the board assumed an average economic growth rate for the U.S. economy of just 1.8 percent, which would be almost half the economy’s average growth rate for most of this century and by far the lowest rate of growth in the nation's history.

If the economy were to grow even marginally faster than that--at say 2 percent per year--over the next four decades, there would in fact be no shortfall in the fund.

Unfortunately, for the ratings-driven corporate media, reporting this kind of desperate scare story is like reporting on an approaching snow storm--the scarier they can make the news the better. Never mind that the storm will likely peter out in flurries or rain, never mind that the U.S. economy is much stronger than political hacks like Snow are pretending it is--the point is to get readers and viewers to hooked.

If it were true that the economy were going to grow that glacially--and if the administration really believed that prediction--it would have to concede that its four years of outrageous tax cuts and massive deficits, all of which they had claimed would stimulate the economy, have been a colossal failure. How to explain why record tax cuts will produce a record slow growth in the U.S. economy over the next two generations?

Put aside the question of whether tax cuts do or do not stimulate economic growth. Put aside too the claim about "insolvency," which of course cannot happen to a government that prints the money. The point is that if the U.S. economy is in for such a prolonged doldrums, which would inevitably be accompanied by massive unemployment, there are more pressing concerns than rescuing Security forty years from now. We'd better start doing something to prepare for a much earlier crisis.

But in fact, the projection is a lie. Just ask Alan Greenspan and the Federal Reserve, which just raised interest rates a quarter of a percent and warned of further rises--not the kind of economic braking action you'd expect if the nation were headed for a ditch.

Nobody in the economic forecasting business, and certainly nobody in the investment community, where people bet their fortunes on predicting the direction of the economy, anticipates such a prolonged slump in growth.

Nor should anyone who is counting on Social Security for their retirement.

Besides, Snow is wrong even regarding his warnings about the implications of a slump. If it turns out that at some point there were going to be a shortfall in Social Security funding, there are other answers besides raising the payroll tax on workers or slashing benefits for retirees. The simplest is raising the payroll tax on the wealthy, who currently only pay it on the first ,000 of income. The tax could also be applied to unearned investment income, which currently pays nothing into the Social Security fund. Best of all, there is another option that has never been discussed: changing the formula that has employer and employee each pay 50 percent of the tax. There is nothing magic about that ratio, after all; it was simply how the system started out in 1935. It could just as easily be shifted so that employers paid 70 percent and employees paid 30 percent, or even to a 90/10 formula, where employers would foot 90 percent of the bill.

Then we could raise the employer tax rate by a few percent without hurting workers' paychecks at all. After all, over the last decade, corporate taxes have been slashed. Corporations and their shareholders would hardly notice a rise of a few percent in their payroll tax bill, which would not even bring most companies back up to the corporate tax rate they were paying in 1990.

Snow’s new "wolf" cry notwithstanding, there is no worsening Social Security crisis.

There is no crisis at all.

For the rest of this column and other stories by Lindorff, please go (at no charge) to This Can't Be Happening! .

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