Friday, February 04, 2005

Bush's Social Insecurity

The centerpeice initiative of Bush's second term is going to be Social Security destruction. This much he made clear in his SOTU. What is equally clear is that there isn't a single surplus this man likes, nor a working program he can't wreck with creative lies and misdirection.

The simple fact is that Social Security, or Old Age, Survivor, and Disability Insurance (OASDI), is a well-run and highly successful program which will be running significant surpluses for the forseeable furute. In fact, if the economy grows at the same average rate in the next 40 years that it did in the past 40, there will be no projected program deficits in the 2040s, as Bush's economists project. Regardless, our knowledge of the future is to incomplete to really know what is going to happen with OASDI. But even if we had perfect confidence that OASDI were going into deficit, Bush's plan doesn't address the problem. In fact, Bush's plan for 'privitized accounts' is simply political cover for greatly reduced benefits, and a sop to those who want Americans to be forced to save at a higher rate (higher than zero, which is our current savings rate).

Bush attempts to throw a scare into Americans by predicting that OASDI will go 'bankrupt' in the 2040s, but that is a mischaracterization. It is possible that there will no longer be a surplus and that liabilities will exceed income for the system at some point, but even if Congress can't summon the will to enhance revenues to the system, the full faith and credit of the United States stands behind the benefits. There is no reason why general revenues cannot pay for OASDI benefits as OASDI Trust Fund surpluses now pay for general budgetary spending. There is no organic or neccessary line dividing Federal revenues.

Why do I keep calling Social Security OASDI? To emphasize that old age benefits are only a part of the insurance system. It also covers the survivors of prematurely deceased workers and those who become disabled and unable to work. These payments are critical to keep families from falling into abject poverty and are an important part of America's social safety net: a part which Bush's 'plan' competely ignores. Instead Bush's 'plan' proposes cuts of up to 40% in old age, survivor and disability benefits to avoid the theoretical threat of budget deficits of just 1.61% of payroll, far less than the deficits his Administration is nonplussedly running in the general fund right now. This 'plan' will plunge thousands, if not millions, of Americans into abject poverty.

There are many better and more conservative ways to bolster the system's revenues to close any future deficits. We can increase the payroll limit, taxing some portion of earnings above the current income ceiling of 90,000. We could bring more government workers into the program to improve revenues and provide greater portability to those workers. We could fix increases to the Cost of Living Index instead of wages. We can devote revenue from an estate tax on estates above 10 million dollars (enough to exempt 99% of family farms) to the OADSI system. We can gradually increase the retirement age, or reduce benefits for the first years of retirement. These are just a few of the revenue enhancing and cost saving options that the Trustees have recommended.

But what Bush proposes doesn't close the revenue gap. He does not propose any revenue enhancements for the OASDI program, in fact, his 'solution' is to take over 1/3 of the current revenues out of the system and put them into personal annuities, and then borrows over 2 trillion dollars to pay for the new system's costs. The benefit to the public? Unknown. However, what is known is that the macroeconomic effect of this system, when you clear away the rhetoric, is to cause the government to borrow heavily to speculate in the securities market and pass the risk to those who can least afford it, our elderly, disabled, and infant and widow survivors. At the end of the day, Bush cannot even claim to close the projected revenue shortfall in OASDI with his risky scheme, instead he simply reduces benefits based on whatever revenue might be available. AOSDI would no longer be a gauranteed benefit program upon which people could rely and plan; it would be a lottery ticket in place of a meal ticket.

Bush's 'fix' for social security is not to fix it at all. Instead, he would gut its revenues to pour them into the equities and bond markets and hope for the best - then radically cut benefits if things don't work out. One sure effect of the plan is to shore up and artificially inflate the financial markets as trillions in new capital are forced into the market. If you thought the speculative tech bubble of the 1990s created a market distortion, you ain't seen nothing yet. Those new funds will raise the values of stocks and bonds as more and more money chases the same investments. New wealth with be created without creating new value, and the American stock market will become even more over-capitalized than it currently is. It's good for a very few very wealthy investors who own the lion's share of equities, corporate and government debt in this country, but it's like junk food to America's long term fiscal health.

For those of you over 55, Bush has figured out a magic bullet to take you out of the game. The reason why OASDI has been the 'third rail' of politics is because you would immediately destroy any politician who might reduce your benefits. So Bush structured his plan to avoid engaging you. Instead, he's going after your younger siblings, children, and grandchildren's benefits. He figures they are an easier target and can't defend themselves politically. Well, we'll see if you really are as selfish as he thinks.

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