Playing the American worker for a chump can’t be a fun job. Treasury Secretary John Snow has been doing his best, though not with obvious pleasure.
The subject is Social Security. And the occasion for the latest round of manipulation is the annual report just released by the program’s trustees.
“Unsustainable” is the favored word. It makes people think that Social Security is in crisis. It conjures up the image of a stagecoach barreling toward a cliff. Snow was all over the airwaves last week saying “unsustainable” and promising heroic efforts to pull Social Security from the abyss.
These theatrics are totally unnecessary. The Social Security program is not only sustainable, it is easily sustainable. And given the economy’s past performance, the odds are better than even that we won’t have to lift a finger to keep it going.
What did the trustees say? They said that in 2017, Social Security payroll taxes won’t be enough to cover the benefits promised to retirees. The Social Security Trust Fund will have to make up the difference. By 2041, however, the trust fund will run out of money.
The trustees clearly know how to add. But many economists think that the economic assumptions they use to reach their conclusions are nuts. The trustees predict economic growth well below historic levels. A growing economy is one reason why Social Security remains solvent today – even though there are now only three workers supporting each retiree.
The important number here is productivity. The trustees assume that productivity will grow only 1.6 percent a year. But the average annual rise in productivity since World War II has been 2.1 percent. If we just take the last 10 years, it has been 2.3 percent. And in the last few years, annual productivity has grown at a handsome 2.8 percent.
“If you raise productivity just 0.1 percent (from the trustee’s pessimistic assumption of 1.6 percent),” says Dean Baker, co-director of the Center for Economic and Policy Research, “you wouldn’t have to worry in 2041. If you say 2.1 percent, that would push it out to 2053.”
The report contains a few other items that the Bush administration has chosen to ignore. One is the trustees’ use of a 75-year time frame in assessing Social Security’s long-term viability.
No economist in his right mind would go beyond 75 years in predictions. But the Bush administration, which can’t balance one year’s budget without borrowing, talks about fixing Social Security unto eternity. Good soldier that he is, Snow is now out there talking about a “permanent solution” to Social Security’s alleged crisis. And wouldn’t you know? That solution calls for harsh medicine.
“It’s between crazy and dishonest,” Baker says. “One thing I’m certain about is that, come 2060, Americans are not going to give a damn what George W. Bush and Congress thought was a good idea in 2005.”
Another assumption that the trustees use, but that President Bush rejects, is that the Social Security Trust Fund actually exists. The money in the trust fund comes from extra taxes workers have been paying into the program since 1984. This surplus is invested in U.S. Treasury bonds.
Bush says the trust fund is a myth. And he refers to the government bonds sitting in a Social Security vault as just “a pile of IOUs.”
I’d like to see Bush tell the Chinese government, mutual fund managers and others who invest in U.S. Treasury bonds that their securities are just “a pile of IOUs.” I dare him.
And, no, making good on the trust fund bonds is not just a matter of the working stiffs paying themselves back. Money in the Treasury’s pot also comes from taxes on corporate income and the investments of rich people who never worked a day in their lives.
One other thing the workers should know: Social Security is not welfare. They pay for it with taxes taken out of their weekly paychecks. Not a dime comes from general revenues.
But perhaps the workers will get rolled in the end. After all, Snow felt perfectly safe in saying last week, “Social Security represents an $11 trillion unfunded obligation.” If that doesn’t get the stiffs reaching for their pitchforks, nothing will.
Froma Harrop is a Providence Journal columnist. Contact her by writing to fharrop@projo.com.
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