Op-Ed Columnist: Inventing a Crisis
December 7, 2004
By PAUL
KRUGMAN
Privatizing 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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