Friday, October 24, 2008

Twenty-five-year-old lie

What's the trouble with Social Security?

Twenty-five years ago, Alan Greenspan chaired a panel that recommended fiscal reform of Social Security in face of an unfunded shortfall due to the demographic bulge of retiring Baby Boomers. Ronald Reagan and the then-Democratic Congress accepted the bulk of the panel's recommendations, and the result was later benefits, higher payroll taxes, and taxable benefits for the affluent.

Higher payroll taxes had the biggest long-term impact. Basically, this was pitched as us Boomers salting away money for our retirements. Fair enough.

The trouble, though, is that we as a nation didn't actually salt the money away. We used it to make the deficit appear smaller.

Now, Serious people keep coming back to the well to say things like this:

"Social Security's negative cash flow becomes so horrendous -- hundreds of billions of dollars a year -- that our nation's 20- and 30- somethings aren't going to let the government cover it, regardless of how many Treasuries the trust fund holds. So forget about 2039 or whenever. Starting [sic] worrying about 2016 or 2017," [Forbes editor Allan] Sloan wrote.
(Forbes published this is March. You have to wonder what the news hook is for this. With the Republicans totally out of power in 2009, maybe it's just the last chance to push the same old story.)

As ever, here are the choices:
  • Reduce benefits - Turn the program and the 1980s reform into a lie and theft to boot. Tell seniors they're screwed, and it's tough.
  • Borrow trillions in seed money for privatization - Again, the 1980s reform becomes a thieving lie. The poverty reduction that was a main goal is left to the stock market, and you know how well that works.
  • Tax a few hundred billion in general revenue per year to balance the accounts - This isn't pleasant, but it's a relatively small number. It also refuses to claim for fiscal convenience that the responsible act of the 1980s was actually a filthy lie.
Borrowing our way out of this might conceivably be another option, but we have so many other massive bills coming due (Iraq, the Wall St. bailout, at least one more stimulus, not to mention debt service on the trillions we already owe) that it's just not a credible one.

I actually support raising the retirement age, even as far as 70, despite the obviously adverse effect on me. I would also remove the cap on FICA-taxable earnings, where Barack Obama proposes new FICA taxes only on incomes over $250,000. (Either my or Obama's measure might convince Republicans that FICA actually is a tax, even though they have ignored it completely for a decade in talking about relative tax burdens.)

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