February 23, 2001
While the media is preoccupied with the disgraceful behavior of former President Clinton, President Bush can’t be heard telling Americans about a much more dangerous bogeyman in our future–the underfunded American social security system. It will spring its deadly financial trap on all of us in little more than a decade.
A train-wrecked social security system may not be a headline grabber like a dying Clinton legacy is, but the damage it will do to America’s future will be much worse than Clinton’s misguided pardons of tax fugitives and drug dealers. Bush needs to be heard about social security.
What’s the problem?
Despite politicians’ denials for years, the social security system, which most of us will rely on for retirement income, is underfunded to the tune of about $20 trillion dollars for today’s participants. Compare that with what the politicians are calling our “huge” projected 10-year budget surplus of about $5 trillion.
There is no trust fund that holds social security money. The trust fund holds government bonds, which is a type of IOU, which will be paid off by raising taxes on future generations, or by simply drastically cutting back the benefits paid to future retirees. Although the government’s income from social security taxes is currently greater than the outgo to today’s recipients, the extra cash is simply put into the government’s general fund and spent. Nothing but another IOU is put into the social security trust fund.
By about 2014, due largely to the retirement of the post World War II baby boom generation, social security will begin running a deficit, that is, it will pay out more to recipients than it collects in taxes. That’s when, in theory, it starts dipping into the trust fund, which has only IOUs in it. Get it? No money! The only way to raise the money is to raise taxes or cut benefits, or both.
This scam has been going on for years, through both Republican and Democratic administrations. It was set up poorly by Roosevelt in the beginning, and ever since politicians have been abusing it, taking the money for purposes other than retirement savings.
But the only politician talking about doing anything sensible is President George W. Bush, who is being drowned out by ever more Clinton scandals. As part of his tax reform, he wants to partially privatize social security, that is, let part of the taxes you now pay into social security be invested in the private sector, including the stock market. They would be investments tightly controlled by financial managers who know what they are doing. No government investing. That would really screw things up.
What Bush wants to do with social security is what every responsible think tank in the country has been urging politicians to do for 20 years. The private sector has earned 8% in real money over the past 75 years (including the Depression years), while the government’s social security has earned 2%-not in real money but in the government IOUs in the trust fund.
Two dozen other countries whose retirement systems were in similar jeopardy have already made changes similar to what Bush is proposing, and they work. Britain is a shining example. Bush’s plan doesn’t go as far as a lot of think tanks want, but it’s a brave courageous start.
Up to now, politicians have considered social security the third rail of American politics, namely, touch it and experience political death because it has been a sacred cow to a lot of people. That is changing because more of the public has caught on to the urgency of the situation, and the fact that it is they who are in peril.
In a Cato-Zogby poll just conducted, for example, 70% of Americans support partial social security privatization. Significantly, young people, those ages 25-34, support it by the highest margin-a whopping 84.8%. They understand that social security will not be there for them unless something is done. You can read the poll at http://www.socialsecurity.org/zogby/zogby-2001.pdf
In President Bush we have a President who has the guts to propose the change that must be taken to save social security, and a majority of the public understands it must be done. So for God’s sake let’s dump this Clinton guy on the ash heap of history and get down to the urgent business of saving the nation’s retirement system.
And by the way, those who want to use the projected budget surplus to bolster the social security system are just whistling into the wind. Only IOUs go into the trust fund, not money. Congress will simply spend the surplus money if it is not returned to the people. The people, on the other hand, will spend money returned to them in the marketplace, which generates a healthy economy, which in turn generates a healthier future. Maybe they’ll even invest some of the tax return into a personal retirement account of their own.
How urgent is social security reform? We hope we have until 2014 before social security begins going broke. If there is a serious economic downturn (a big tax cut will help prevent one), or if there is a major medical breakthrough so that people begin to live a lot longer, that date will be pushed up.