Friday, May 06, 2005

Same old saw

Charles Krauthammer editorialized in WaPo Having lured the president out onto a far limb on Social Security, the Democrats have begun sawing. Democratic leaders immediately rejected the president's plan and stood up for all that is good and true and saintedly Rooseveltian -- without, of course, offering any alternative. To be sure, the president started all this on his own, first proposing personal accounts. Democrats objected that this did nothing about the really important issue, namely solvency. So Bush offered five solvency alternatives in his State of the Union address (four first proposed by Democrats) and welcomed any other ideas. The Democrats answered: "You go first." On April 28 the president did go first, proposing a remarkably progressive reduction in the rate of growth of benefits.

A very reasonable solution.
The Democratic leadership, supported by misleading headlines around the country, denounced these "cuts" as the work of a party that never did believe in Social Security and now wants to kill it.
Democrats always complain something is a cut, even if it is an increase that is not as great as they would have preferred.
Yes, these are cuts, but only in the growth of promised benefits in the future -- based on formulas written in the pre-baby boomer retirement era that so inflate benefits that they are entirely unsustainable. They cannot possibly be paid by the taxes of the fewer workers in the future who will be supporting the many retirees.
They don't plan for the future. They just look to the next election.

To simplify somewhat, the amount of your first check upon retirement is based on your average wages during your lifetime. Then a formula adjusts that number to wage inflation -- which generally amounts to price inflation plus about 1 percent annually. The Bush proposal is to preserve this ever-increasing, ever-compounding benefit formula for poorer Americans, while gradually phasing out the extra 1 percent as you move to wealthy wage earners. No one gets cut -- either in nominal or real dollars. Everyone gets at least as much or more than any retiree today, with the poor getting progressively more every year. This is about as fair and progressive a plan as you can find. Even the inveterately, reflexively, often apoplectically anti-Bush Michael Kinsley expressed admiration -- and indeed puzzlement that the president would offer it without any prospect of short-term political advantage.

Leave the quest for short-term political advantage to the Democrats. They have finally gotten a Republican president to openly propose "cuts" in Social Security and they intend to win seats in 2006 running all-out against them. The White House seems to think that this obstructionism will not work. The Democrats will be blamed for doing nothing. But if A accuses B of doing nothing, and B accuses A of destroying the one social program that everyone supports, who do you think wins?
Good point. But the younger voters are beginning to understand, and they are the ones that Dems count on.

And Democrats have a wonderful smoke screen. These "cuts" are not only destructive but unnecessary, they claim, because the insolvency does not kick in until sometime in mid-century -- the Democrats' latest comically precise number is 2052 -- when the "trust fund" runs out. (So much for their month-ago concern about solvency.)

As I have been writing for years with stupefying redundancy -- and obvious lack of success -- this idea is a hoax. There is no trust fund. The past Social Security surpluses were spent the year they were created. The idea that in 2017, when the surpluses disappear, we will be able to go to a box in West Virginia to retrieve the money we need to make up the shortfall (between what Social Security takes in and what it pays out that year) is a deception. There is no money there. It will have to be borrowed or garnered from new taxes.
Precisely. The lock box had a hole in the back.
But things are worse than that. The fiscal problem starts to kick in not in 2017 but in 2009. The Social Security surplus, which Congress happily spends every year, peaks in 2008. Which means that starting in four years (and for every year thereafter) a budgetary squeeze begins, requiring new taxation or new borrowing. If in 2010 tax revenue and spending remain exactly the same as in 2009, the Treasury will not end up with the same size deficit. It will end up with a larger deficit, because the amount of money it was receiving free and "borrowed" from the Social Security surplus will have shrunk. That surplus shrinks from its peak in 2008 to zero in 2017 and goes negative after that. That is a very serious fiscal problem that starts not in 50 years, not even in 12 years, but in four.

Time for action, you might think. Ah. But before all those years comes 2006. And a chance for power. A chance for Democratic politicians to once again hear that most mellifluous phrase: "Mr. Chairman." Hence, that sawing noise.

Matthew Yglesias commented Why it is that conservatives keep writing that there will be "fewer workers in the future" I couldn't quite say. Are they lying? Just totally innumerate? Neither the overall workforce nor the population is shrinking, nor is either projected to do so at any point in the future. This is just some kind of made-up "fact" that rightwingers have convinced themselves of.
Actually what they said is there will be fewer workers to support each retired person.

And why is it that the benefits "cannot possibly be paid by the taxes" of future workers? For the sake of argumet, one can concede Krauthammer's dislike of trust fund accounting
He knows there is no money in the trust fund
and discuss this on a cash flow basis. Benefits, viewed this way, are projected to rise by two percentage points of GDP over the next 75 years. If that were to happen, overall public sector expenditure in the United States (and therefore the long-run tax burden) would need to go up from 35.6 percent of GDP to around 37.6 percent of GDP.
The Dems are just saying there is all of that Gross Domestic Product, let us have more of it to spend
Betsy Newmark commented Charles Krauthammer is his usual precise and devastatingly intelligent self in looking at the dishonest campaign that Democrats are running against any change in the Social Security system. As Krauthammer explains, the Democrats refused at first to even acknowledge that there is any problem with Social Security. Then, when polls showed that people realized that there is a problem with Social Security, they started demanding that the President do something about solvency. When he took the bait and proposed a progressive change in how benefits are calculated, Democratic politicians started crowing that he was destroying the program and harming the middle class. This is not true. I don't like the idea that my benefits might not be as large as they could be. But, hey, I'd rather that than huge taxes and no Social Security benefits for my children.

No comments: