Social Security phase-out

I just wanted to mention that Musenla at her De Profundis blog has been doing a very helpful and informative set of posts on Bush's Social Security phase-out plan.  If you're looking for information and links on the issue, that's a great place to look.

In her post of 03/01/05, she looks at how the administration is been unethically using the Social Security Administration (SSA) as a Propaganda Machine to pimp its privatization proposal.  That reminded me of the text that came with my last official annual Social Security Statement, the one the SSA sends out now to everyone paying Social Security tax (SSI) to show what your projected benefits would be.  My last statement was dated 05/14/04, months before Bush started his current scare campaign for privatization.

But even then, the official statement was being used to promote misleading scare tactics to discredit the current system (my emphasis):

Social Security is a compact between generations. For more than 60 years, America has kept the promise of security for its workers and their families. But now, the Social Security system is facing serious future financial problems, and action is needed soon to make sure that the system is sound when today's younger workers are readv for retirement.

Today there are almost 36 million Americans age 65 or older. Their Social Security retirement benefits are funded by today's workers and their employers who jointly pay Social Security taxes — just as the money they paid into Social Security was used to pay benefits to those who retired before them. Unless action is taken soon to strengthen Social Security, in just 14 years we will begin paying more in benefits than we collect in taxes. Without changes, by 2042 the Social Security Trust Fund will be exhausted.* By then, the number of Americans 65 or older is expected to have doubled. There won't be enough younger people working to pay all of the benefits owed to those who are retiring. At that point, there will be enough money to pay only about 73 cents for each dollar of scheduled benefits. We will need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations as II has done in the past.

The asterisked item says in the footnote: "These estimates of the future financial status ot the Social Security program were produced by the actuaries at the Social Security Administration based on the intermediate assumptions from the Social Security Trustees' Annual Report to the Congress."

A reader seeing this and assuming it was sober, factual analysis from the Social Security Adminstration would get exactly the kind of scary picture of the system that the pro-phase-out Republicans want us to see.

The truth is that there is no crisis, not even "serious future financial problems" in the sense that most people would understand that phrase.  Yes, according to the SSA's intermediate assumption (between best-case and worst-case), if there are no increases to Social Security revenue, in 2042 the system could only pay out 73% of what it should.  But even that would be more in real terms than people today are receiving, according to the same set of assumptions.  Under those assumptions, the system would be underfunded at that point.  To say as my SSA statement from last year does that this means "the Social Security Trust Fund will be exhausted" is just pro-privatization propaganda.

It worth noting that the administration relies on these and even more pessimistic assumptions to conjure up the phony Social Security "crisis."  Yet when they talk about the likely gains that people could make from the money taken from Social Security and invested, they rely on far more optimistic scenarios for the general economy.

This scam about the system being pay-as-you-go is also just Republican demagoguery.  The 1983 Social Security reform addressed the fact that for some period of years during the early part of this century, there would be as many people at a given moment drawing Social Security as paying into the system.  So payroll taxes were adjusted - and the Social Security retirement age raised to 67 on a phased basis - so that a surplus was built up to cover that period.

There's nothing exotic about this.  Social Security is a social insurance fund.  Like all insurance, its purpose is to manage risk.  It puts a floor of retirement-age  income under all participants, which is specifically to limit the downside risk of the fortunes of life leaving people destitute in their old age.  Private insurance companies put a great deal of effort into forecasting likely payouts well into the future, and they build up reserves to cover the most likely scenarios.  And based on those projections, they plan their investments and borrowing and other aspects of their business based on that.

That's also how the Social Security trust fund works.  The 1983 reforms have been building up enough money to handle the expected bulge in "baby boomer" elderly.  If the long-term projections over the next few years continue to show a shortfall occurring in 2042 or so, the payroll taxes would need to be increased.  The easiest and most fair way to do that would be to raise the current ceiling of income that is subject to the payroll tax.

Incidentally, in one of my posts last year remembering Ronald Reagan, I mentioned that 1983 reform as on the three most significant positive accomplishments of his presidential administration.  I noted that the 1983 action, which was a genuinely bipartisan and serious effort, put the system "on a sound financial basis (where it still is today, despite the hysterical propaganda of Republican ideologues who have always hated the entire concept of Social Security)."