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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