OP-ED COLUMNIST
Inventing a CrisisBy PAUL KRUGMAN
Published: December 7,
2004
rivatizing Social Security - replacing
the current system, in whole or in part, with personal investment
accounts - won't do anything to strengthen the system's finances. If
anything, it will make things worse. Nonetheless, the politics of
privatization depend crucially on convincing the public that the
system is in imminent danger of collapse, that we must destroy
Social Security in order to save it.
I'll have a lot to say about all this when I return to my regular
schedule in January. But right now it seems important to take a
break from my break, and debunk the hype about a Social Security
crisis.
There's nothing strange or mysterious about how Social Security
works: it's just a government program supported by a dedicated tax
on payroll earnings, just as highway maintenance is supported by a
dedicated tax on gasoline.
Right now the revenues from the payroll tax exceed the amount
paid out in benefits. This is deliberate, the result of a payroll
tax increase - recommended by none other than Alan Greenspan - two
decades ago. His justification at the time for raising a tax that
falls mainly on lower- and middle-income families, even though
Ronald Reagan had just cut the taxes that fall mainly on the very
well-off, was that the extra revenue was needed to build up a trust
fund. This could be drawn on to pay benefits once the baby boomers
began to retire.
The grain of truth in claims of a Social Security crisis is that
this tax increase wasn't quite big enough. Projections in a recent
report by the Congressional Budget Office (which are probably more
realistic than the very cautious projections of the Social Security
Administration) say that the trust fund will run out in 2052. The
system won't become "bankrupt" at that point; even after the trust
fund is gone, Social Security revenues will cover 81 percent of the
promised benefits. Still, there is a long-run financing problem.
But it's a problem of modest size. The report finds that
extending the life of the trust fund into the 22nd century, with no
change in benefits, would require additional revenues equal to only
0.54 percent of G.D.P. That's less than 3 percent of federal
spending - less than we're currently spending in Iraq. And it's only
about one-quarter of the revenue lost each year because of President
Bush's tax cuts - roughly equal to the fraction of those cuts that
goes to people with incomes over $500,000 a year.
Given these numbers, it's not at all hard to come up with fiscal
packages that would secure the retirement program, with no major
changes, for generations to come.
It's true that the federal government as a whole faces a very
large financial shortfall. That shortfall, however, has much more to
do with tax cuts - cuts that Mr. Bush nonetheless insists on making
permanent - than it does with Social Security.
But since the politics of privatization depend on convincing the
public that there is a Social Security crisis, the privatizers have
done their best to invent one.
My favorite example of their three-card-monte logic goes like
this: first, they insist that the Social Security system's current
surplus and the trust fund it has been accumulating with that
surplus are meaningless. Social Security, they say, isn't really an
independent entity - it's just part of the federal government.
If the trust fund is meaningless, by the way, that
Greenspan-sponsored tax increase in the 1980's was nothing but an
exercise in class warfare: taxes on working-class Americans went up,
taxes on the affluent went down, and the workers have nothing to
show for their sacrifice.
But never mind: the same people who claim that Social Security
isn't an independent entity when it runs surpluses also insist that
late next decade, when the benefit payments start to exceed the
payroll tax receipts, this will represent a crisis - you see, Social
Security has its own dedicated financing, and therefore must stand
on its own.
There's no honest way anyone can hold both these positions, but
very little about the privatizers' position is honest. They come to
bury Social Security, not to save it. They aren't sincerely
concerned about the possibility that the system will someday fail;
they're disturbed by the system's historic success.
For Social Security is a government program that works, a
demonstration that a modest amount of taxing and spending can make
people's lives better and more secure. And that's why the right
wants to destroy it.
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