[PEN-L] Jamie Galbraith: Kerry was right on Social Security

[Devine, James]

http://www.salon.com/opinion/feature/2004/10/14/social_security/index_np.html

Schieffer was wrong, Kerry was right

Contrary to the moderator's suggestion in the third debate, Social Security
is not running out of money. And the Democratic candidate wasn't pandering
when he said privatizing it would be disastrous.

- - - - - - - - - - - -
By James K. Galbraith

Oct. 14, 2004  |  CBS News anchor Bob Schieffer did a fine job of
moderating the third presidential debate. Except for one thing. And that
was when he began his question on Social Security by stating, "We all know
Social Security is running out of money."

Social Security is not running out of money. Here are the facts.

1. Social Security is part of the government. It cannot run out of money
unless the whole government also runs out of money. And the government of
the United States cannot run out of money. That is not my opinion, it's an
economic fact.

 2. Social Security is an entitlement. Not even Congress can easily
interfere with its payments. Congress would have to vote to default on the
bonds Social Security holds for benefits to fail over the next 40 years. It
would have made more sense for Schieffer to say, "We all know that the
Pentagon is running out of money" -- military spending must be appropriated
each year. But we all know that the Pentagon won't be permitted to run out
of money. Ditto Social Security, in spades.

3. Yes, the U.S. government can make policy mistakes. It could potentially
run such large deficits that we would get a ruinous inflation, or a
disastrous decline of the dollar. But such a result could never be due to
Social Security alone. It's a risk of the budget deficit as a whole.
Obviously, Bush's tax cuts made a much larger contribution to the overall
deficit than Social Security ever will.

4. Right now, Social Security isn't running a deficit. It's running a
surplus. Yes, that's right. The payroll tax takes in more revenue than
Social Security pays out. This will continue to be true until at least
2018. It could remain true for much longer than that -- if the economy
starts to grow good payroll jobs, on which Social Security taxes are paid.

5. After 2018, because of the retirement of the baby boomers, it's likely
that Social Security benefits will exceed payroll tax revenues. Is this a
problem? Not really. The program's trustees project that benefits can be
paid with no changes at all in the program until 2042. The Congressional
Budget Office says 2052. If the economy does as well between now and then
as it did during the past 75 years, no changes will ever be needed. And if
it doesn't, the real benefit when shortfalls hit will still be higher than
today.

6. If the Trust Funds eventually have to be adjusted in order for full
promised benefits to be paid, minor adjustments will suffice. And they will
be good policy. When payrolls are relatively small, why not tap other
revenues to pay pensions? The tax increases in any decade from the '50s to
the '80s would have been adequate to plug the gap. Suppose, for example,
that the estate tax were not repealed but instead credited to Social
Security? In that way, much of the shortfall could be covered from
America's most progressive revenue source. (Even the New York Times'
editorial board recently suggested this might be a good idea.)

7. How long can we go on paying Social Security benefits at present and
projected levels? Essentially forever. Social Security benefits are not
grossly excessive. And at 6.6 percent of gross domestic product over the
long run, they won't become grossly excessive. Unlike medical costs, per
capita retirement costs are not exploding. As economist Dean Baker puts it:
"There was no point in the years from 1937 until the 1983 reforms when the
program would have looked as strong as it does today."

8. When NBC's Andrea Mitchell accused John Kerry of pandering on Social
Security after the debate, she reflected the mind-set of the coddled rich.
Yes, it may be necessary someday to touch a little more of her income to
cover all the bills. But frankly, Mrs. Greenspan, it's worth it -- both to
protect America's elderly and to watch you squirm.

9. After that lousy preface, Schieffer asked a good question. Privatization
of Social Security would divert payroll tax revenues into private accounts.
And that would blow a huge whole in the budget. Bush simply ignored this
fact, as he always does. The fact is, Bush wants to gut Social Security. He
made that clear Wednesday night.

Kerry's answer on Social Security wasn't pandering. He said that we can
keep the system we have. He said we must not privatize it -- "an invitation
to disaster." He said our priority should be to create jobs, the best way
to pay for the system. And he said that we can well afford to wait until
later to see if some minor changes would be wise. Kerry was right on all of
these facts.

****************
About the writer
James K. Galbraith is Salon's economics correspondent. He teaches at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.