May 7, 2005


Place Your Bets (JOHN TIERNEY, 5/07/05, NY Times)

My Social Security, far from being a guarantee, comes with a political risk that will become clear around 2017, when I'll be 64. That's when the Social Security Administration expects to start paying out more than it collects in taxes.

In theory, there is a trust fund to cover this shortfall. When Congress sharply raised Social Security taxes in the 1980's, the idea was to generate surpluses during the baby boomers' working years that would finance our retirement. Instead, Congress spent our money, leaving the Social Security trust fund with a file cabinet full of i.o.u.'s in the form of Treasury bills.

It's not a problem now, because for the next few years the baby boomers' taxes will provide an annual surplus for Social Security of about $100 billion, allowing Congress to dole out the extra money for its favorite causes, like farm subsidies and weapon systems and West Virginia buildings named after Robert Byrd. But in four years the surpluses start declining, and they turn into deficits around 2017, when Congress must begin repaying those i.o.u.'s.

By the time I'm in my 70's, the Social Security shortfall will force Congress to find new taxes or make spending cuts that are more than half the size of the Pentagon's budget. If I make it to age 88, there will no more i.o.u.'s left in the trust fund, so everyone's benefits would have to be cut by 27 percent.

Faced with the grim math, President Bush offered a progressive compromise last week to Democrats: protect the poor while moderating the growth of benefits for higher-income workers. Democrats refused to bite, denouncing his "cuts" without offering a plan of their own, and members of both parties wondered why any politician would jeopardize his party's chances in 2006 by tackling an unpleasant future problem.

Wouldn't it be amusing if every time a politician or pundit wrote or spoke about the "risks" of privatization they were required to reveal how much money they had invested in their own 401k, IRA, mutual funds, etc.?

Posted by Orrin Judd at May 7, 2005 8:39 AM

I'm beginning to think Tierney is writing all these columns on the Social Security crisis as much to annoy fellow Times columnist Paul Krugman and smoke out the four-month overdue "solution" to the problem he promised in January as it is to get it through the heads of the Times' typical readers that there is a problem.

Posted by: John at May 7, 2005 8:49 AM

My only quibble here is that spending the FICA money as part of general revenues was always the plan and, more or less, is the only thing that the government can do with money. The only alternative is AlGore's "lockbox", about which I'm sure we're all eager to hear much more. As the lockbox concept requires the government as a whole to be running a huge surplus, it was always a non-starter.

Posted by: David Cohen at May 7, 2005 10:10 AM

I have never really understood the objection to allowing people to increase their return on their Social Security funds without appreciably increasing their risk. Going from 1-2% to 3-4% will significantly increase return over time without impacting risk.

Posted by: bart at May 7, 2005 11:21 AM

But isn't it true that if everybody were to increase their returns by the same amount, it wouldn't change anything in the bigger picture? If everybody's returns go up the same percentage, then the money is not worth any more than it is now.

Posted by: SP at May 7, 2005 3:12 PM

More accurately, I should say: One's spending power would not be worth any more than it is now.

Posted by: SP at May 7, 2005 3:26 PM

Only for things that just old people buy. I imagine Metamucil might get more expensive.

Posted by: Timothy at May 8, 2005 1:27 AM

SP: Careful, you might be missing the point by seting aside the core question: why are the naysayers entitled to do what they're disalowing you and me to do (TSP to be specific)?. Meanwhile, your comment assumes that we should retain the government to administer our funds in order to BE SURE we get (at best) returns with NO CHANCE of outpacing inflation. Further, that increased buying power isn't achievable. Classic question begging.

Posted by: John Resnick at May 8, 2005 11:28 AM

John, I should note that I'm a staunch advocate of Social Security reform. I am, in fact, a staunch advocate of Social Security's elimination.

Shifting to private accounts simply does something different with the money. In a universal sense, it won't improve anything but the possible solvency of Social Security. Arguing that "we'll all have more money" is not a meaningful argument, because when we ALL have more money, that money isn't worth anything extra.

Even if we all were to go into private accounts overseen by the government, we're still doing something mandated by the government.
Capitalism, in its real form, must have winners and losers -- when everyone is a "winner," nobody is a winner.

Posted by: SP at May 8, 2005 1:47 PM

Also, take care to note that I was responding specifically to the post by bart.

Posted by: SP at May 8, 2005 1:49 PM