This is part of another essay uncovering an important mathematical distortion in Bushies' mathematics.

The Social Security Fear Factor


Published: January 3, 2005

        
If you've lent even one ear to the administration's recent comments on Social Security, you have no doubt heard President Bush and his aides asserting that a $10 trillion shortfall threatens the retirement system - and the economy itself. That $10 trillion hole is the basis of the president's claim last month that "the [Social Security] crisis is now." It's also the basis of the administration's claim that the cost of doing nothing to reform the system would be far greater than the cost of acting now.

Well, the $10 trillion figure is the closest you can get to pulling a number out of the air. Make that the ether. Starting last year, as the groundwork was being set for the emerging debate, the Social Security trustees took the liberty of projecting the system's solvency over infinity, rather than sticking to the traditional 75-year time horizon. That world-without-end assumption generates the scary $10 trillion estimate, and with it, Mr. Bush's putative rationale for dismantling Social Security in favor of a system centered on private savings accounts. The American Academy of Actuaries, the profession's premier trade association, objected to the change. In a letter to the trustees, the actuaries wrote that infinite projections provide "little if any useful information about the program's long-range finances and indeed are likely to mislead any [nonexpert] into believing that the program is in far worse financial condition than is actually indicated."

As it often does with dissenting professional opinion, the administration is ignoring the actuaries. But that doesn't alter the facts or common sense. If the $10 trillion figure is essentially bogus, so is the claim that Social Security is in crisis. The assertion that doing nothing would be costlier than enacting a privatization plan also turns out to be wrong, by the estimates of Congress's own budget agency.

Over a 75-year time frame, Social Security's shortfall is estimated by the Congressional Budget Office at $2 trillion and by the Social Security trustees at $3.7 trillion, a manageable sliver of the economy in each case. If the shortfall is on the low side, Social Security will be in the black until 2052, when it will be able to pay out 80 percent of the promised benefits. If it is on the high side, the system will pay full benefits until 2042, when it will cover 70 percent.

Contrary to Mr. Bush's frequent assertion that Social Security is constantly imperiled by political meddling, it has in fact been preserved and improved by political intervention throughout its 70-year history, most significantly in 1983. The system could - and should - be strengthened again by a modest package of benefit cuts and tax increases phased in over decades.

Instead, the administration wants workers to divert some of the payroll taxes that currently pay for Social Security into private investment accounts, in exchange for a much-reduced government benefit. To replace the taxes it would otherwise have collected - money it needs to pay benefits to current and near retirees - the government would borrow an estimated $2 trillion over the next 10 years or so and even more thereafter.

In effect, the administration's plan would get rid of the financial burden of Social Security by getting rid of Social Security. The plan shifts the financial risk of growing old onto each individual and off of the government - where it is dispersed among a very large population, as with any sensible insurance policy. In a privatized system, you may do fine, but your fellow retirees may not, or vice versa.