I have to strongly disagree on several counts with my colleague Walldon’s post on Social Security earlier today.
1. Why present a solution when there is not a problem? These “solutions” presented by progressives to what is presently a non-problem – and is quite likely never to become a problem in the future -- preserve the false belief that there is a problem that needs to be solved. It’s a pointless and counterproductive exercise that keeps Republicans hopeful that, someday, they can build the critical mass to eliminate Social Security as we know it, turn it into a mandatory 401-K as stage one, and then make it voluntary as stage two – at which point, Social Security will have been eliminated as a social insurance program.
2. We can say it’s not an individual retirement annuity all we want, but it is structured to serve like one, or like a defined-benefit pension program: you get an annual statement of your very own projected benefits, your benefits are tied to your contributions, your benefits once "vested" with sufficient work are guaranteed to a far greater extent than any private annuity, and the entire process is enshrined into law. It’s a social insurance program intended for everyone. It is funded entirely outside the general revenue fund that our regular taxes pay into. That’s why calling it a regressive tax misses the point.
3. Looking at it as a generational transfer is the same as looking at any defined benefit pension plan as a generational transfer. It is extraordinarily short-sighted, reflecting the libertarian view that the individual is disconnected from the larger society except by compulsion, or that there is no such thing as a society or a community. Like any defined-benefit pension program, it is designed to be a pay-as-you-go system, which means, naturally, the people who work are the ones who pay for it. Most important, the generation that pays now is the generation that will be paid later. Sometimes it seems that we have lost all sense of the common good under the relentless assault of the right wing and extreme ideological libertarians.
4. There is a reason why, even through periods of Democratic control of the government, the principles of Social Security withholding have not been turned into a progressive taxation system. The founders of Social Security recognized that, at least in the United States of America with its underlying hostility to any kind of taxation and at most grudging acceptance of the concept of progressive taxation, a social insurance program must be for everyone, or it will not maintain political support from everyone. There is a modest amount of progressivity built into the program with the assurance of minimum benefits to the poorest recipients. But once you turn it into a welfare program, in which both the rich as well as relatively affluent but still middle class Americans pay much more into the program than they ever get out of it, you lose or threaten any self-interested support from at least 20 per cent of the population – the percentage that earn more than the current cap. It may, in fact, be much larger, because many younger workers will think they will pass the cap before long, and have to pay a tax solely to support others. In tough times, welfare programs get cut.
Nothing could be better calculated to generate a groundswell for reviving the notion of private accounts than taxes on those people with no corresponding benefit to them. They also happen to be the Americans who own and operate the country’s major opinion-forming institutions. As it is now, it is only a small percentage of the population for whom Social Security is a meaningless sum in their total retirement package. It’s in that extremely privileged segment where the primary opponents of continuing the program as social insurance can be found. But for probably 97-98% of Americans, Social Security will be significant even if insufficient, and there is no other retirement vehicle available that not only (a) guarantees payment for life, (b) covers a spouse for life, and, (c) after retirement, is adjusted for inflation with no stop-loss provision protecting the payer, but also (d) is adjusted annually from the first day of withholding until retirement for improvements in prevailing wages, i.e., with real improvements in the standard of living above and beyond inflation.
Can you even imagine the cost of a private annuity that would offer that? Of course, only the government can absorb the risk in such a program. No private institution could handle such uncertain exposure. Can we figure out why that means it's one hell of a deal if the risk is too great for even the wealthiest private institutions?
5. In another society where the principle of progressive taxation is firmly grounded even among the wealthy, we might be free to treat Social Security as simply a tax-funded program. But in the U.S. which is not even close to becoming such a society, it is critical to maintain the strong connection between the payments and the benefits. We can call it an illusion, but it’s no more an illusion than the promise of the U.S. Government to pay X% interest on the bonds it sells, or that your money in a bank is federally-insured. Because it is backed by the virtually limitless capacity of the United States Government, without the threat of, say, criminally overvalued collateral for some investment, it is much less an illusion than the value of your stocks or mutual funds. It is built into law, and anyone who would change the law to threaten benefits already paid for will be politically destroyed forever.
6. The reason we can say that the “most likely economic scenario” is fairly unlikely
to occur is that, on average every year for at least the last 14 years, the forecast has been both wrong and too pessimistic. As recently as 1996, the official forecast said we would need to start dipping into the Baby Boom Surplus in the Social Security Trust Fund in 2012. In 1998, they said, by the most likely scenario, that the surplus would be used up in 2028. Yet in 2006, we have put off when we have to start using the surplus until 2017, which means the revenues for current, pay-as-you-go funding (without the kicker for building up the surplus for the Baby Boom generation) have been larger than expected. It also means that, assuming again that we finally have that projection down pat, we won’t even have to start using the surplus expressly created to handle retirements of the Baby Boom generation until 10 full years after those retirements began. (That was in August.)
As for when the surplus is “likely” to be used up, instead of the 2028 expected in 1998, or the 2029 expected in 1994, they now think it’s going to be 2041. Notice also that, while in 1994 they expected the surplus to last for only 16 years (from 2013 to 2029), but now it is expected to last for a 24-year period – which, in turn, means that surplus has been and will probably continue to build up more than expected. It also means the surplus will have lasted long past its original intended purpose, because Baby Boom retirements will start ending in about 2030.
All of this actual experience suggests that, to hazard an educated guess, we probably won’t actually have to start using the surplus until about, oh, 2019 or 2020, and once we do we probably won’t use it up until about 2050. Not only is that not a “crisis,” but these actual results say we do not know if we will have a problem in the future or not. By definition, if we only think we might
have a problem some time in the fairly distant future, and if we can only speculate how big a problem it could actually be, that means we do not have a problem now, either. There is nothing to fix. We should continue to watch carefully, yes, but that is all.
7. If we ever determine that we really are going to have a funding problem, we will have plenty of time to fix it, and we should do as the 1983 Commission did: a mix of steps that are the most politically acceptable all around. That means a bunch of tinkering at the edges, maybe some relatively small raising of the cap (so long as Social Security still remains a decent deal for the people affected, some tinkering with the rate, some tiny adjustment of the benefits, or more likely, a digestible mix of all of those. Unless there’s a universal social compact to do so – and there won’t be in this country as long as people like the Mellons, the Coors and the Scaifes are around -- it should definitely not be a fundamental change in the principles on which the program was founded and has been run successfully through gigantic societal changes for over 70 years.
Progressives play into the hands of right-wingers when they engage in discussions about what we should do to take corrective action based on a shaky actuarial forecast. If they want to protect Social Security and the social contract it represents, there really is only one position for progressives to take:
Fears about Social Security have been 100% generated by right-wing extremists who want to eliminate Social Security as a retirement security program. They want to eliminate Social Security as we know it because it is a successful and popular government program and is a threat to their extreme anti-government ideology. Other Republicans want to privatize it so Wall Street can get its hands on that money. If we stick to what has worked so well for almost 75 years, Social Security is going to be there for you. Listen to that again, young people. Social Security is going to be there for you. It’s guaranteed by law every bit as much as your insured money in the bank. It would be completely irresponsible and unfair to take more taxes from anyone at this point, when the most we can say is that they might come in handy some day because we could have a problem some day.