You are NOT on the DirtyGreek.Org homepage. Please CLICK HERE to go there.
I don't know much about social security or the details of how it works, so I don't have alot to weigh in with. Media Matters, however, has been talking quite a bit about it. At least, they've been disrupting the lies surrounding it. Ripped straight from their website:
CNN co-host Tucker Carlson and The Washington Post bolstered the Bush administration's crisis rhetoric on Social Security by providing misleading accounts of the federal program's "solvency."
On the December 16 edition of CNN's Crossfire, Carlson purported to "correct" former Clinton national economic adviser Gene Sperling's statement that "Social Security does not become insolvent until 2042." Carlson responded: "In 2018, just to correct you ... that's, again, only 14 years. Benefits will overtake revenues."
In a December 17 article in The Washington Post, after noting that President Bush "said Social Security will be paying out more than it collects" by 2018, staff writer Peter Baker reported that congressional Democrats are "[c]iting different accounting than the president's" to "argue" that under the current system Social Security will "still be solvent for nearly 50 years."
In fact, Sperling is correct in noting that Social Security is projected to remain solvent until 2042, according to the same authoritative U.S. government report upon which Carlson relied: the 2004 annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (OASDI). 2042 is the year that the Social Security trust fund is projected to run out; the year Carlson cited, 2018, represents the time when the program's payouts to retirees are projected to exceed tax revenue. At that time, the government will have to supplement revenues with the Social Security trust fund to meet payment obligations to retirees, but the system will not be insolvent.
The Post's Baker, on the other hand, misleadingly suggested that one's view of when Social Security becomes insolvent is a matter of partisan opinion. It is not. Bush is talking about one thing -- what is projected to happen in 2018 -- and the Democrats are talking about another -- when the system is projected to become insolvent. By conflating the two issues, Baker suggested that the Democrats are being partisan in their assertions about projected insolvency. In fact, Sperling's and the Congressional Democrats' assertions reflect, respectively, the presumably nonpartisan (though the Bush administration is well-represented) Social Security Board of Trustees and the at-least-equally nonpartisan Congressional Budget Office, which projects insolvency by 2052, rather than 2042.
From the December 16 edition of CNN's Crossfire:"SPERLING: I do believe that, even though Social Security does not become insolvent until 2042, we as a country would be better to take on the problem now.
[...]
CARLSON: In 2018, just to correct you, in 2018, which is only 14 years from now, according to the board of trustees of overseers of Social Security, that's, again, only 14 years. Benefits will overtake revenues. So that's actually pretty soon. |
From Baker's December 17 Washington Post article, "Bush Lays Out a Plan to Revise the Social Security System":| "Bush made clear [in the White House economic conference] that he intends to expend considerable political energy in pushing for a partial privatization of Social Security to help secure the program, which faces sizable shortfalls over the next few decades. By 2018, he said, Social Security will be paying out more than it collects, and over the long term the system faces a $10.4 trillion unfunded liability. ... Congressional Democrats dismissed the conference as a public relations exercise distorting fiscal reality. Citing different accounting than the president's, Senate Minority Leader Harry M. Reid (Nev.) and House Minority Leader Nancy Pelosi (Calif.) argued that Social Security would still be solvent for nearly 50 years. |
Also, a bit from 18 1/2 Minute Gap:
 "That middle line is the one people are using when they say things like "Social Security will be bankrupt in 2042". But you should know a few other things:
1. The other two lines are also projections done by the Social Security trustees using a more and less optimistic set of assumptions.
2. The middle line assumes a long-term GDP growth of 1.8%/year, which is lower than we've been used to.
3. If growth is a bit higher, say 2.6%/year, we'll be in the "Line I" territory and there will be no problem with Social Security.
4. The point where the line crosses "0%" doesn't mean that the trust fund is bankrupt. It just means that that's the point where Social Security will be taking in less than it needs to pay out. At that point, there will still be enough revenue to pay 80% of the expected benefits.
5. Most privatization advocates talk about how private accounts will be a better deal than Social Security, based on the notion that they'll return 5-7%/year. Well, if overall GDP growth is in the 1.8%/year range, it will be very hard to get those returns. And if GDP growth is enough higher to make those returns likely, then there won't be any problem to be solved. |
And Washington Montly:"Every year the Social Security trustees produce a 75-year financial estimate. To do this, they make estimates of population growth, life expectancy, economic performance, and so forth, and then add them all up into an overall estimate of long-term solvency. In fact, they make three estimates (see chart on right), and the one you hear about in the news is the middle one, or "intermediate projection." In that projection, Social Security starts running a deficit in 2042. The key assumptions in the intermediate projection from 2015 forward are the following:
*
Labor force growth: 0.2% per year.
*
Productivity growth: 1.6% per year.
*
Average hours worked: no change.
Which leads to the following overall estimate:
*
GDP growth: 1.8% per year.
This growth is lower than we're used to, but that's because GDP growth = population growth + productivity growth. Since population growth is slowing down, so will GDP growth.
Still, what if you assume that things will be a little more robust than this? If you project GDP growth of around 2.6% per year, you end up with Estimate I, and in that scenario Social Security never runs out of money. In fact, if you project GDP growth just a few tenths higher than 1.8%, Social Security stays solvent for the next century.
In other words, if GDP growth averages, say, 2.2% over the next 75 years, Social Security is in fine shape and we don't have to do anything. We only need to "fix" it with private accounts if GDP growth is less than that.
So here's the puzzler: for private accounts to be worthwhile, they need to have long-term annual returns of at least 5%, and 6-7% is the number most advocates use. But are there any plausible scenarios in which long-term real GDP growth is less than 2% but long-term real returns (capital gains plus dividends) on stock portfolios are well over 5%? |
|
