Don't let them frighten you about Social Security

Ripped from the wires ... Columnist Froma Harrop warns us not to fall prey to Bush administration scare tactics on Social Security.

By FROMA HARROP

The stock market hasn't been this nasty since the 1970s. House prices continue their dive, and consumer confidence has gone splat. The rocketing federal budget deficit will probably orbit Mars by the time the government finishes cleaning up the mess left by the housing bubble it so blithely let fester.

Good job, fellas. The Bush administration doesn't have a heckuva lot of credibility left on economic matters. But some members think they have one little ideological game left to play. Scare people out of their wits about Social Security.

"For Americans up their eyeballs in debt -- or whose dreams of leisure rested on rising house prices -- Social Security remains a star of stability in the rising gloom. Fortunately, Social Security is doing just fine.

But the financial geniuses in the Bush administration still want to mess with it. And the only way they can stampede the public into doing something stupid to Social Security is to portray the program as a very sick patient needing to be saved.

Economist Dean Baker has spent long years trying to save Social Security from its would-be surgeons. A founder and director of the progressive Center for Economic and Policy Research, Baker continually tracks the tireless efforts to undermine confidence in the program -- often helped by liberals swept up in the phony panic.

Consider the comments following the Bush administration's new report on Social Security and Medicare. "In fewer than 10 years,'' Treasury Secretary Henry Paulson warns, "cash flows are projected to turn negative -- meaning that we will draw upon general revenues to support withdrawals from the (Social Security) Trust Funds in order to pay current benefits.''

Paulson is referring to 2017, when Social Security payroll taxes may no longer be able to cover benefits owed retirees. To keep the program on track, he says, the tax may have to be raised or the benefits cut.

"I think this is really dishonest,'' Baker told me. "2017 means zero to the program.''

True, the government must dip into the Trust Funds -- which hold the Social Security surplus -- in 2017. "But that's the reason we built up the surplus,'' Baker notes.

"When we got to 1982, the thing was literally out of money,'' Baker recalls, "but no one missed a check.'' Congress and the Reagan administration responded by raising the Social Security payroll taxes and starting to save for the future challenge. Enough money now sits in the Trust Funds to get us to 2041, the program's trustees report.

That the government would someday have to "support withdrawals from the Trust Funds'' hasn't been a secret for 25 years. Nor is this merely a matter of Americans repaying themselves, as many conservatives argue.

The money in the Trust Funds, Baker notes, came from the very regressive payroll tax on workers. The general funds that support the withdrawals come from the very progressive income taxes -- which also cover investment income.

What should we do about Social Security?

"I would just say, 'Let's sit on this,''' Baker answers. If come 2030 Americans see problems looming, he adds, "we can do something.''

Much could change in over 20 years. Productivity gains have helped fewer workers pay for more retirees in the past and could in the future. And longer life spans may also alter the dynamics.

"How long into their lives should someone born in 2020 work?'' Baker asks. "I have no idea.''

If politicians want to agonize over retiree benefits, they have their hands full with Medicare. Paying for that program will be a bear of a problem. But they should keep their paws off Social Security.
Presidential candidates, please take note.

Harrop is a syndicated columnist.

Comments?

Comments

[jim sefter]

It almost seems that my entire adult life someone or some group or politico has been trying to scare us about Social Security going broke. Not that we shouldn't be vigilant, but it gets tiresome hearing this all the time.
To paraphrase another sometime's Poster: zzzzzzzzz.

[Nick]

I'm not falling for that again. That's how I voted for this current idiot. The ability to invest and expand my social security, instead of the locked box. Lets see, I'm still not investing my social security. I don't know if I would have that box by now either, but I do know I'm not investing.

[Denney Clements]

No one has a Social Security account per se. The program is and always has been a tranfer of wealth between generations -- from those in the work force to those who are retired. The program is actuarily unsound because the ratio of workers to retirees is decreasing steadily and will flatten out when the brunt of the baby boom generation reaches retirement in a few years.
So I don't necessarily agree with Harrop's expert source that we need do nothing about Social Security except wait (though I do agree we shouldn't give into the administration's fear tactics). Much of the "money" in the trust fund is potentially worthless federal paper because, since the Reagan administration, Congress has used the trust fund money to make deficits look less severe than they are.
The Balanced Budget Act of 1997 -- a deal between the Clinton administration and the Gingrich Congress -- took advantage of rising federal surpluses to cease the practice. But in 2002, the Bush administration and Republican Congress went back into deficit mode and quietly raided the SS trust fund again.
The fate of Social Security, therefore, is tied directly to our willingness to suffer the spending cuts and endure the tax increases necessary to get the federal government out of the deficit mode. Will be do that? Doubtful.
McCain wants more tax cuts and envisions unspecified spending cuts. Clinton and Obama envision new federal entitlements. And we voters don't seem to have the political will to tell the candidates -- and more important, our congressional representatives -- that we want the madness to stop.
dc

[policywonk]

As an observation, there were about 50 million social security beneficiaries at the end of 2007. Of this number, about 31.5 million were actually retired workers. Just wait until the 12 to 15 million illegals get access to social security benefits along with their 12 to 15 million relatives. Then you can really ring the fire bells. In a related noted, there were about 7.5 million recipients of SSI (federal welfare payments compliments of the taxpayers, but not from social security monies)at the end of 2007. It is a matter of time before social security benefits are fully taxed at 100% to help pay for the growth in social programs and non-taxpayers.

[Paul Petillo]

Everyone it seems wants to kill Social Security. Those that don't, are rehashing old ideas that have not sold well in previous attempts.

I was thinking of another way to save the program from the defeatists and those lacking originality.

It is widely considered fact, that the recent actions of the Fed, stepping in before Bear Stearns could collapse is a good thing if, and this is a very big IF, they can hold the securities they guaranteed until maturity. I am not defending what the Fed did by any means and have been on the record as critical of most of their actions. But the guarantees they offered on the questionably valued securities might offer a glimpse into how Social Security could be saved.

Mortgage backed Securities, for those who may not know are bundled home loans that make money available to those who sold the loans in the first place to lend again. The problems began when the product was offered for sale. Since few had been sold, no one knew what they were worth and unfortunately, no one was willing to hold onto them until they matured. Because of this "thin" activity and the unfolding mortgage crisis, values plummeted. When the Fed stepped in, they secured these securities and created a value for them.

My proposal to save Social Security is this: Could these types of securities, which can be bought on the cheap, be a way to fund SS without buying Treasuries?

If the surplus in SS is be used to purchase mortgage backed securities and, if the program held them long enough, would be highly profitable. This type of purchase would remove the surplus from the hands of lawmakers with several certain side effects. The securities would attain a stable value relative to the underlying security, the home that backs the loan would be worth keeping (interest rates could be frozen on these loans once the new value of the security was established)and the economy would get the needed boost of stability.

Future MBS's could be peddled to the program and would further stimulate the economy. Folks stay in their homes and the future of Social Security would be cemented in the American Dream.

[beachguy(original)]

Paul: Then the SS trusted fund would be worthless...packed with worthless MBS instruments. An instrument that should be declared illegal.

I find it amusing that the feds have no problem bailing out bear stearns......how about forget about banks and only pay on the FDIC backed deposits.

Watch the crooks clean their act up then !!

Watch the idiots that have everything they own leveraged to 150% say bye bye.

WHy should I pay for $80,000 Hummer payments for a moron that mortgaged his house to buy one. Let em go broke....they already are..they just keep extending their loans.

[policywonk]

Paul--While your proposal has some merit, it will not happen. Private investing of collected social security taxes is a flagrant act of political deception and an election year gimmick. The folks in Washington use the monies to cover their budget shortfalls and to fund those giveaways to mostly non-taxpayers. I believe a major problem with social security is that it strongly favors those beneficiaries who worked the least and paid the least into the system. As an added note, by 2005, when the full retirement age had risen to 66, 85 percent of men and women applied for early Social Security benefits. The never ending greed of government at all levels to tax those who actually pay taxes is driving a lot of people out of the workforce at an early age.

[Paul Petillo]

MBS's have real mortgages in them that can be bought for pennies on the dollar. The reason for this is the fact that no one can determine whether all of the mortgages are good, some of them, or none of them. But each loan is secured by a home and that is an asset class that, even though depressed (and getting more depressed) now will eventually recover.

Remember, SS could, in theory hold them that long. It would secure the surplus, take it out of the hands of Congress and infuse the lending market with new money to offer to future homebuyers - not all of whom are sub-prime.