Why Social Security is No Crisis

And the "crisis" is just a ploy by those who want to destroy it

Economic absurdities that
Democrats must expose:

...because it's wrong to penalize success and hard work.

...therefore, we should eliminate the capital gains tax.

...After all, they came from, and understand, business.

...even though it is based on pitting the worlds' workers against each other.

...union bosses are only out for themselves.

...and the more the rich have, the more will trickle down to everyone else.

...Democrats are communists, or at least, socialists at heart.

...so when we tax wealthy investors, we lose jobs.

...so investors, not workers, create wealth.

...so we should give them all the tax breaks possible.

...Democrats just want to tax and spend today.

General Issues:

...check out this 2-minute video.

...It's a mountain, and a terrible defense of globalization.

...for those of Indonesia, Mexico, China and India.

...and how not to do it again.

...and the "crisis" is just a ploy by those who want to destroy it.

...Republicans' most important propaganda technique.

...and get the media on your side

This Site

     This website is going to depart from its usual policy of not quoting liberal publications and commentators, simply because there is a vacuum in the conservative mainstream media in its supposed coverage of Social Security issues.

     The following three articles are presented because they present irrefutable and verifiable facts that can totally change the public's perceptions about Social Security. If you are at all serious about understanding the issues relating to Social Security, you owe it to yourself to check them out:

  • First, check out the Bush Administration’s hidden agenda is as it is revealed in a “not for attribution” memo to its key right-wing supporters. It clearly reveals The True Republican Strategy for Social Security, and its real goal to gradually destroy it.

  • Second, it’s important to understand the economic issues that motivate people like Alan Greenspan when they try to manage the economy so that it benefits the rich and powerful at the direct expense of working Americans. Check out Doug Orr’s Social Security isn't Broken, in Dollars and Sense. He makes the crucial point that “The consumption of all dependents (non-workers) must come from the output produced by current workers. It’s the overall dependency ratio—–the number of workers relative to all non-workers, including the aged, the young, the disabled, and those choosing not to work—that determines whether society can "afford" the baby boomers’ retirement years.”

  • Third, voters need to understand the main areas of confusion that conservatives have deliberately created in order to hoodwink the public. Paul Krugman explains these in his Confusions about Social Security, available from The Berkeley Electronic Press. (Note: when you access this free site, just enter "none" for the entries that don't apply to you.)

  • Forth, consider the more conservative view of Margaret Tyson, who sees Social Security surviving quite nicely with just a few minor adjustments in tax policy and a few specific minor reductions in benefits. Business Week published her op-ed piece titled Social Security Crisis? What Crisis?

The True Republican Strategy for Social Security

     Those who have been living in a cave for the past 100 years, and still believe that the Republicans want to “save” Social Security—should read the following.

From The Wall Street Journal, January 6, 2004.

White House Memo
Argues for Social Security Cuts

Note Aims at GOP Backers
Of Private Accounts Alone;
Threat to Party's Majority?

WASHINGTON—The White House, in a private memo to conservative allies, strongly argues that Social Security benefits paid to future retirees must be significantly reduced. The memo disputes those on the right who insist that creating private investment accounts is all that's needed to fix the retirement system.

To fail to make benefit cuts while diverting payroll taxes to workers' personal accounts, the memo argues, would be irresponsible and "have serious short-term economic consequences."

The memo, contained in a Monday e-mail from Peter Wehner, President Bush's director of strategic initiatives, was marked "not for attribution." It reflects the White House's behind-the-scenes efforts to avert a split in Republican ranks over the politically charged Social Security issue. The Wall Street Journal reviewed a copy of the memo, which wasn't released publicly, and it's unclear how wide a distribution it had. There are indications that it went to legislators and a number of influential conservatives outside Congress.

For years, Mr. Bush has emphasized the upside of private accounts—potential investment gains for workers. The memo goes beyond anything the president and his team have said publicly about the pain—as lawmakers call benefit reductions—that would accompany a Social Security fix….

The administration is trying to rally conservatives behind a plan that would let workers divert payroll taxes to personal investment accounts, while shrinking Social Security benefits for future retirees….

Mr. Wehner cited the administration argument that the nation faces more than $10 trillion in unfunded obligations for promised benefits. Allowing workers to divert a portion of their 12.4% Social Security payroll taxes to personal accounts would cost as much as an additional $2 trillion in the first decade, Mr. Wehner acknowledged, because the government would have to make up the diverted payroll taxes to pay current retirees' benefits….

"If we borrow $1-2 trillion to cover transition costs for personal savings accounts and make no changes to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities," the memo says. "This could easily cause an economic chain reaction: the markets go south, interest rates go up, and the economy stalls out."…

The political stakes were evident yesterday as national AARP officials met with reporters. Chief Executive William Novelli said opposing the diversion of payroll taxes to private accounts would be the seniors' lobby's top priority this year. Carving out private accounts would be "risky, hugely expensive and unnecessary," Mr. Novelli said.

He also said that doing away with the wage-indexing formula for benefits would be "draconian" for future retirees. While the current formula ensures that Social Security replaces, on average, about 40% of a retiree's income, Mr. Novelli said that substituting an inflation index for the wage index would cut that replacement rate nearly in half, according to Social Security Administration calculations….

     This is about as clear as you can describe the motivations of the Republicans. They obviously want to gradually starve Social Security to death, and are even willing to risk bankrupting our economy to do it—with the “trillions” of dollars it will take to privatize the system.

     And the only way they can make their draconian system work is to drastically cut the retirement benefits to those Americans who are making all the sacrifices that have allowed our economy to thrive for our newly minted aristocrats.

Social Security Crisis? What Crisis?

From Business Week, January 17, 2004.


Social Security Crisis? What Crisis?

Modest benefit cuts and revenue increases would solve the shortfall

By Laura D'Andrea Tyson

Is the Social Security system facing a crisis? President George W. Bush certainly wants us to think so. Indeed, he recently warned that the "crisis is now." After years of repeated warnings by conservative political thinkers, the word crisis has become the mental frame that shapes the way many Americans think about Social Security's future.

But as a recent Brookings Institution book by Peter A. Diamond and Peter R. Orszag demonstrates, Social Security does not confront a crisis; in fact, its solvency for future generations can be ensured through modest benefit reductions and modest revenue increases.

To defuse the crisis hype it is useful to begin with a few facts. First, Social Security is a significant source of income for elderly Americans, providing the majority of income for two-thirds of elderly beneficiaries and all of the income for 20% of them. Second, according to the most recent report by the Trustees of Social Security, even under the cautious assumption that the U.S. economy grows at the anemic rate of 1.6% a year, the revenues into Social Security from the current level of payroll taxes will cover promised benefits for another 38 years and will be enough to finance about 70% of benefits through 2078.

The net present value of the shortfall in revenues over the next 75 years is $3.7 trillion, only about one-third of the net present value of the Bush tax cuts of 2001 and 2003 and about 0.7% of gross domestic product projected for the same period. An immediate payroll tax increase of about 2% would eliminate this gap. So would paring the Bush tax cuts of 2001 and 2003 back by less than 50%, and transferring the added revenues to Social Security.

THIRD, THE PROJECTED financing gap in Social Security is not the result of overly generous benefits. Under current law, projected benefits are slated to fall from only 33% of previous earnings for an average worker of 62 today to a low 29% by 2030. And retired workers with low lifetime earnings as well as disabled workers and their families often live in poverty despite Social Security's progressive benefit formula. Any proposal to restore solvency through benefits cuts alone would require a 20% reduction in payouts in addition to the declines built into current law, sharply increasing poverty rates among future beneficiaries (assuming that the disabled and those presently 55 and older are exempt).

In contrast, Diamond and Orszag propose a plan that calls for modest cuts in overall benefits, some improved treatment of the most vulnerable categories such as workers with low lifetime earnings, and a gradual increase in the combined employer-employee payroll tax rate from 12.4% today to 13.2% in 2035 and 15.2% in 2075. Benefits for the average worker aged 45 today would be cut by about 1%, and for the average worker aged 25 today by about 9%, relative to currently scheduled benefits. However, the level of inflation-adjusted benefits would continue to rise.

A major lesson of this analysis is that Social Security can be put on a solid financial footing without dramatic change. In contrast, President Bush is using the specter of an impending crisis to justify allowing workers to divert up to 4% of their payroll taxes into private, individually controlled retirement accounts. This would reduce payroll tax revenues available to cover promised Social Security benefits by as much $2 trillion to $4 trillion, transforming an imaginary crisis into a real one.

The Bush Administration has recently indicated that it plans to finance these transitional costs of creating private accounts through additional government borrowing. But the amounts involved are as much as an added $100 billion a year in government borrowing for the next decade, rising to $350 billion a year after 20 years.

Additional borrowing of this magnitude on top of already large government deficits could spook global investors, triggering sharply higher interest rates on U.S. government debt and a collapsing dollar. But President Bush has been silent about the possibility of such a crisis. He has also been silent about the fact that individual accounts would require paying financial management fees that could amount to more than 25% of Social Security's current 75-year funding gap.

For nearly 70 years, Social Security has provided all working Americans with a basic level of income protected against inflation, financial market fluctuations, not to mention the risks of disability, losing a family wage-earner, or outliving one's assets. With a few modest changes, it can continue to deliver this remarkable security. There is no crisis.

     It’ll be interesting to see how long, if ever, it takes the mainstream conservative radio and TV media to also publish the real facts about Social Security.

     Given radio's and TV's absence—and even the mainstream print media's absence—it may be up to you to educate your fellow voters.