In fact, the Social Security commission is likely to bring up those huge future shortfalls at its next meeting, on July 24. But Washington being spin-doctor heaven, you can bet that the uncertain–and speculative–gains from private accounts will get a lot more attention than the certain pain from benefit cuts. As we saw during the tax-cut debate, which was full of numbers that were utterly bogus, Bush is all in favor of “fuzzy math” if it’s his folks who are doing the fuzzing.
A 40 percent future cut may strike you as alarmist fantasy, but it’s not. Here’s the math. Bush’s campaign proposal was to divert 2 percent of Social Security wages into optional private accounts. That money wouldn’t be available to pay benefits. Now, open the 2001 Social Security trustees’ report. Go to the intermediate estimates on page 44. Subtract Bush’s proposed 2 percent diversion from Social Security’s revenues. The program starts running a cash deficit in 2007, nine years earlier than now envisioned. By 2015, the deficit is 16 percent of projected benefits. By 2035, 37 percent. And forget the Social Security “trust fund.” It’s useless, for reasons we’ll discuss another time.
Here’s a second proof, though you’ll have to take my word for it. When Sens. Daniel Patrick Moynihan and Bob Kerrey introduced their Social Security reform bill three years ago, they proposed to cut the tax rate by 2 percent, giving people the option to set up individual accounts with it. That’s the same number Bush pushes. To make the system balance, Moynihan and Kerrey proposed benefit cuts (such as raising the retirement age and changing the inflation adjustment) and tax increases (such as raising the Social Security wage base) that worked out to at least a 35 percent cut from the current formula.
I have nothing against giving people the option of putting some Social Security money into private accounts–most of my retirement money is in stocks. But people need to be told that there’s no free lunch. That if you opt for this account, you get a lower government benefit. And you’re taking serious risks. And that the combined government and private-account benefits will be less than the current formula provides. And that we decide if we let people who mess up their stock accounts starve.
The only way to have an honest debate about Social Security–America’s biggest and most important social program–is to tell people the hard truths. Which Bush shows no signs of doing. A Bush spokesman insisted that retirees’ benefits would be higher under Bush’s proposal than under the current formula. This strikes me (and every expert I’ve consulted) as impossible. I pressed the spokesman for numbers to back up what he said, but couldn’t elicit any from him. Draw your own conclusions.
Let’s avoid getting caught up in an esoteric debate with dueling spreadsheets about whether government payments or private accounts will produce more money for beneficiaries. Instead, focus on the real question. Which is whether Social Security is going to remain a program to keep people from being poor, its original intention, or whether we should alter it to try to make people rich. Do you want to be assured that you won’t have to live on cat food? Or do you prefer to accept lower benefits and higher risk and trust your investing skill to provide something for you and your heirs? That’s the choice. Even in Washington, there are no free lunches.
