The Reality of Social Security: There is No Crisis

There is no crisis in Social Security. Past and current presidents have spent huge surpluses on wars and weapons. If they had let it alone, Social Security as it was during the Reagan Administration would have been solvent for the foreseeable future... well into the 22nd Century. Now as Krugman points out below, even with the surpluses gone, Social Security can be repaired, with roughly 1/4 of the tax cuts that overwhelmingly went to the rich.

The New York Times > Opinion > Op-Ed Columnist: Inventing a Crisis

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.

Complete Article

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.

E-mail: <a href="mailto:krugman@nytimes.com">krugman@nytimes.com



http://www.nytimes.com/2004/12/07/opinion/07krugman.html?ex=1103478589&ei=1&en=9f6f540fa3e2f6fd



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