Friday, March 25, 2005
Social Security Reform - is W crazy like a fox?
Over at El Cid, another blog taking an interest in the social security issue (and linking frequently to this blog, thank you very much) the proprietor has posted a sort of listing of important dates in the history of social security. Straight factual stuff, just a chronology really. And a couple of patterns emerge: continually increasing taxes and piecemeal half-measures in response to a problem that’s been obvious for over twenty years.
Social security taxes have risen constantly, more slowly at first and then more quickly. From 2% in 1935 to 3% in 1950. With the addition of disability coverage and early retirement for women at age 62, the rate went to 4% in 1956. In 1961, early retirement (at 62) for men was allowed, and the tax rate went to 6%. In 1972, with the addition of automatic cost-of-living increases (and the famous “notch” miscalculation of inflation rates) the tax went to 9.2%. In 1977, the “notch” miscalculation was corrected and the tax set at 9.9%.
In 1983 the National Commission on Social Security Reform, created in response to the realization that the system was “actuarially unsound” (which is a fancy way of saying “slowly going broke”) called for an increase in self-employment taxes, partial taxation of social security benefits received by “upper income” retirees, inclusion of federal civilian employees (including congress), and an increase in the retirement age from 65 to 67. Social security payroll taxes were set at 10.8%. Problem solved.
Well, for two years, anyway. In 1985 the social security “trust fund” was moved “off budget” and accounted for separately from the rest of the federal budget, and the payroll tax went up to 11.4%. In 1993 taxes were raised again to 12.4%, and the amount of “upper income” retirees benefits taxed rose to 85%. In 1996, the Social Security Trustees' Report stated that the social security system would start to run deficits in 2012, and the “trust funds” would be exhausted by 2029.
In 1997, all members of President Clinton’s presidentially-appointed Social Security Advisory Panel agreed that some or all of Social Security's funds should be invested in the private sector. To keep the unchanged system actuarially sound, payroll taxes would have to be increased 50%, to 18% of payroll, or benefits would have to be slashed by 30%.
And the 1999 Social Security Trustees’ Report stated that the system’s “unfunded liability” had increased by $752 billion…in just the one year period since the 1998 report. The 1999 report projected social security’s long-term “unfunded liability” at over $19 trillion.
In other words, Americans expect to receive benefits totaling 19 trillion dollars more than the total social security tax revenues will generate. Benefits for which social security will not have the money. The “trust fund”, of course, no longer contains any real money, just notes from the federal government. Those notes total around 1.6 trillion dollars. The “trust fund” only exists at all if you pretend that social security is totally separate from the rest of the government. Which is nonsense, since the total $1.6 trillion value of the “trust fund” is in fact $1.6 trillion in federal government debt.
So it seems obvious that, at least since 1983, it has been understood by the government that there is a serious structural flaw in social security: the benefits to be paid out will eventually outstrip the revenues collected. And most estimates put that point at about ten years from now. At that point, the government will not only have to find the money to start paying its notes to social security, it will also have to find some way to make up for the $65 billion or so in cash that it has been borrowing annually from surplus social security tax revenues (which is why there are no real “funds” in the “trust fund”). The response to this looming fiscal “inconvenience” (well, there is no “crisis”, right, and we gotta call it something!) over the years has been a series of stop-gap half-measures, tax increases, increased retirement ages, and accounting shell games that would make an Enron accountant blush.
None of this is news to anyone who has been paying attention to the Social Security issue since Ronald Reagan announced that there was a problem. But what suddenly screamed off the page (or should I say the screen?) at me tonight was that 1997 paragraph. Because it suddenly occurred to me to wonder whether President Bush is really after private personal accounts. Whether he really thinks he can get them.
The Bush bashers will never admit it, nor will the defeated opponents bobbing in his political wake like so much litter tossed overboard, but Bush is as politically shrewd as the day is long. Anyone who has really watched his career knows that the man is a cool political operator with nerves of steel, and he loves to play “bait and switch”…demand the earth and sky, then settle for just the earth. Which is what you really figured you could get in the first place. So, is he really after private personal accounts? Or is he really after the investment of social security revenues in the private sector? A position endorsed by President Clinton, which Democrats might have trouble opposing now, particularly since they’ve already declared they are “open to anything except private personal accounts.” A position Bush could embrace by way of making himself look like the reasonable guy willing to compromise. A position that would accomplish the goal of getting the money out of the government’s hands and into the private sector, where it could fuel economic growth and bulk up domestic savings and investment.
Oh, and one more thing. Do not play poker with that man.
Social security taxes have risen constantly, more slowly at first and then more quickly. From 2% in 1935 to 3% in 1950. With the addition of disability coverage and early retirement for women at age 62, the rate went to 4% in 1956. In 1961, early retirement (at 62) for men was allowed, and the tax rate went to 6%. In 1972, with the addition of automatic cost-of-living increases (and the famous “notch” miscalculation of inflation rates) the tax went to 9.2%. In 1977, the “notch” miscalculation was corrected and the tax set at 9.9%.
In 1983 the National Commission on Social Security Reform, created in response to the realization that the system was “actuarially unsound” (which is a fancy way of saying “slowly going broke”) called for an increase in self-employment taxes, partial taxation of social security benefits received by “upper income” retirees, inclusion of federal civilian employees (including congress), and an increase in the retirement age from 65 to 67. Social security payroll taxes were set at 10.8%. Problem solved.
Well, for two years, anyway. In 1985 the social security “trust fund” was moved “off budget” and accounted for separately from the rest of the federal budget, and the payroll tax went up to 11.4%. In 1993 taxes were raised again to 12.4%, and the amount of “upper income” retirees benefits taxed rose to 85%. In 1996, the Social Security Trustees' Report stated that the social security system would start to run deficits in 2012, and the “trust funds” would be exhausted by 2029.
In 1997, all members of President Clinton’s presidentially-appointed Social Security Advisory Panel agreed that some or all of Social Security's funds should be invested in the private sector. To keep the unchanged system actuarially sound, payroll taxes would have to be increased 50%, to 18% of payroll, or benefits would have to be slashed by 30%.
And the 1999 Social Security Trustees’ Report stated that the system’s “unfunded liability” had increased by $752 billion…in just the one year period since the 1998 report. The 1999 report projected social security’s long-term “unfunded liability” at over $19 trillion.
In other words, Americans expect to receive benefits totaling 19 trillion dollars more than the total social security tax revenues will generate. Benefits for which social security will not have the money. The “trust fund”, of course, no longer contains any real money, just notes from the federal government. Those notes total around 1.6 trillion dollars. The “trust fund” only exists at all if you pretend that social security is totally separate from the rest of the government. Which is nonsense, since the total $1.6 trillion value of the “trust fund” is in fact $1.6 trillion in federal government debt.
So it seems obvious that, at least since 1983, it has been understood by the government that there is a serious structural flaw in social security: the benefits to be paid out will eventually outstrip the revenues collected. And most estimates put that point at about ten years from now. At that point, the government will not only have to find the money to start paying its notes to social security, it will also have to find some way to make up for the $65 billion or so in cash that it has been borrowing annually from surplus social security tax revenues (which is why there are no real “funds” in the “trust fund”). The response to this looming fiscal “inconvenience” (well, there is no “crisis”, right, and we gotta call it something!) over the years has been a series of stop-gap half-measures, tax increases, increased retirement ages, and accounting shell games that would make an Enron accountant blush.
None of this is news to anyone who has been paying attention to the Social Security issue since Ronald Reagan announced that there was a problem. But what suddenly screamed off the page (or should I say the screen?) at me tonight was that 1997 paragraph. Because it suddenly occurred to me to wonder whether President Bush is really after private personal accounts. Whether he really thinks he can get them.
The Bush bashers will never admit it, nor will the defeated opponents bobbing in his political wake like so much litter tossed overboard, but Bush is as politically shrewd as the day is long. Anyone who has really watched his career knows that the man is a cool political operator with nerves of steel, and he loves to play “bait and switch”…demand the earth and sky, then settle for just the earth. Which is what you really figured you could get in the first place. So, is he really after private personal accounts? Or is he really after the investment of social security revenues in the private sector? A position endorsed by President Clinton, which Democrats might have trouble opposing now, particularly since they’ve already declared they are “open to anything except private personal accounts.” A position Bush could embrace by way of making himself look like the reasonable guy willing to compromise. A position that would accomplish the goal of getting the money out of the government’s hands and into the private sector, where it could fuel economic growth and bulk up domestic savings and investment.
Oh, and one more thing. Do not play poker with that man.
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