Social Security - Cutting through the B.S.

Ole Bushie has been making tours to promote his Social Security privatisation plan,and of course with that comes the trademark fear-mongering that is always present with the Neo Conservative logic. "Social Security is in crisis" they say, "it will be gone by 2018" they claim. First, let's lay out the facts undisputedly:

1. Does Social Security face a crisis?
   Yes, it does. But it's not comming in 2018. It's comming in 2041, actually
   
   
2. Will privatisation really help the younger generation?
   No. Infact it would actually burden them quite a bit.
   

According to the Social Security Administration's newest report, released just a few days ago

The 2005 Social Security Trustees Report shows little change in the projected financial status of the Social Security program over last year. The Trustees Report projects that the Social Security Trust Fund will be exhausted in 2041 - one year sooner than last year’s projection.

Now where does Bush get the number 2018 from? In 2017 (accourding to SSA's newest report) tax revenues will fall below program costs for Social Security; but this does not mean that Social Security will be unable to pay out promised benefits. In fact, in 2018 the Social Security trust fund will have $3.6 trillion in assets, as well as $206 billion in interest income that year; as the Center for Economic and Policy Research pointed out in a February 4th article on AlterNet entitled "2018: The Magic Number". So you see, the problem only starts in 2017, it doesn't create a crisis in 2017. But speaking of all this crisis-talk; Fact Check noted in their report about Bush's State of the Union that:

But how severe would those benefit cuts be? In fact there are two official projections -- one by the Social Security Administration (SSA) and a somewhat less pessimistic projection by the Congressional Budget Office (CBO). The President referred to the SSA projection, which calculates that the system's trust fund will be depleted in 2042. After that, the system would have legal authority to pay only 73 percent of currently promised benefits -- and that figure would decline each year after, reaching 68 percent in the year 2075.

The CBO doesn't project trust-fund depletion until a decade later, in 2052, and figures that the benefits cuts wouldn't be so severe, a reduction to 78% of promised benefits. But either way, even a "bankrupt" system would continue to provide most of what's promised currently.

Now don't get me wrong, a cut of 37% is sufficient enough to do something, and make changes to the current system - but it's hardly a call for labeling it as "bankrupt" and "in crisis". I do support a change, and research into a new system; but I do not see the need to jump to poor decisions such as privatisation so that we can "save ourselves now". Privatising Social Security as Bush has proposed would create a disaster for future generations. The Social Security Network's report entitled "False Promise: How Social Security Privatization Would Sting Young Adults" has pointed this out:

Advocates of Social Security privatization often argue that young adults would be better off when they retire if they could divert a portion of their Social Security payroll tax to private investment accounts. Indeed, polls show that the majority of Americans under age thirty do not think Social Security will be available to them when they retire, and many of them are receptive to the idea of private accounts. But analysis of the privatization proposals put forward by the President’s Commission to Strengthen Social Security shows that today’s young people would receive much lower guaranteed benefits with private accounts than they would under the current system. In addition, they would bear the burden of the trillions of dollars in additional federal debt that would be required to finance the new accounts while paying benefits to current Social Security recipients.

The Economic Policy Institute mentioned in August of 99 that:

Another key point buried in the fine print is that a system of private accounts would require benefit cuts and an immediate tax increase on all workers. Large amounts of new money would be needed to cover a 30- to 40-year transition to the new system, while the two programs operated simultaneously.

Workers would need to put money aside to build up balances in the new private accounts, while also paying taxes to maintain much of the current Social Security system (in order to provide benefits to current retirees and to those retiring over the next 20 to 40 years who will not have accumulated sufficient balances in their individual accounts).

Yet another report showing that privatisation simply isn't a great idea.

Way back in October of `99 CEPR put together a report that said that the Study Shows Social Security Projections are Wrong. In this report, they mentioned that:

A new study by M.I.T. professor Peter Diamond, one of the nation’s foremost experts on macroeconomics and public finance, shows that the rate of return on stocks assumed in most analyses of Social Security reform plans are impossible—unless the stock market first takes a large plunge. Professor Diamond’s paper shows that the 7.0 percent real rate of return, which the Social Security Administration and others have routinely used in their projections for various reform options, cannot be obtained unless the stock market first declines by 50 percent or more.

I have tried my hardest to present this information to privatisation supporters, and each time they deny the truth in it. I could understand their doubts if perhaps I were quoting liberal learning groups - but every source I have quoted comes from non-partisan organisations.