Critics accuse White House of distortions on social security

The White House plans to describe Social Security as nearing collapse and critics say that's an exaggeration.

Published: Monday, January 10, 2005 at 6:01 a.m.
Last Modified: Monday, January 10, 2005 at 5:37 a.m.
WASHINGTON - In the first phase of a strategy to build support for overhauling Social Security, White House officials are planning to describe the retirement program as a system in ''crisis'' whose promises to younger workers are a ''fiction.''
Beginning Tuesday, when President Bush will hold a public meeting with people worried about their retirements, White House officials plan to hammer home the message that Social Security is ''headed toward an iceberg'' and will collapse as baby boomers enter retirement.
''We need to establish in the public mind a key fiscal fact: Right now we are on an unsustainable course,'' wrote David Wehner, a White House political strategist, in a memorandum to conservative groups last week. ''The reality needs to be seared into the public consciousness.''
But opponents of Bush's approach say he is greatly exaggerating the problems to sell his plan to scale back Social Security, the government's biggest and oldest social program.
Outside analysts say Social Security's long-term financial gap, which the government estimates to be $3.7 trillion during 75 years, is smaller than the projected cost of Bush's tax cuts or the Medicare prescription drug program that he pushed through Congress in 2003.
The Social Security trust fund has accumulated more than $1.5 trillion in reserves, held in Treasury bonds. Even if no changes are made, the government's actuaries predict the program would be able to pay full benefits until at least 2042 and at least 70 percent of benefits after that.
That is a far brighter outlook than in 1983, the last time Congress shored up Social Security.
The government's long-term projections for Social Security have become more optimistic during the last eight years. Since 1997, government actuaries have pushed back the date of projected insolvency from 2029 to 2042.
The nonpartisan Congressional Budget Office, using different assumptions, predicts that the trust fund will last even longer, until 2052.
''There is a problem, but there is no basis for calling it a crisis,'' said Peter Diamond, a professor of economics at the Massachusetts Institute of Technology and a co-author of the book ''Saving Social Security.''
The Center on Budget and Policy Priorities, a liberal policy research group, estimated that the Medicare prescription drug program would cost $8.1 trillion over 75 years. Permanently extending Bush's tax cuts would cost $11.6 trillion.
''You can make a real argument that the government as a whole faces big fiscal challenges well before 2042,'' said Robert Greenstein, director of the center. ''But Social Security is a very small part of the problem.''
Democratic lawmakers, pledging to protect what they regard as one of their party's most enduring achievements, insist that Social Security's problems can be easily fixed by tweaks to payroll taxes and benefit formulas.
''Their strategy is, we're going to scare people, cut benefits, privatize and call it a reform agenda,'' said Rep. Rahm Emanuel, D-Ill.
But Bush's strategy puts Democrats in a difficult position. If they argue Social Security is fundamentally in good health, Republicans could accuse them of irresponsibly glossing over serious long-term problems.
Democrats concede Social Security faces significant financial problems that would be best addressed sooner rather than later.
The basic facts are not much in dispute. As the nation's baby boomers start to retire at the end of this decade, the cost of retirement benefits is expected to rise much faster than payroll taxes from active workers.
Adding to the imbalance, the laws governing Social Security benefits ensure payments become higher with each generation of retirees, even after accounting for inflation.
According to the Social Security trust fund's latest projections, the cost of benefits will start to eclipse payroll taxes in 2018. By 2042, the trust fund will have used up its reserves and payroll taxes will cover only about 70 percent of the promised benefits.
Beyond the long-term financial gap of $3.7 trillion during the next 75 years, Bush cites a more alarming number: $10.5 trillion, or sometimes $11 trillion, as the expected shortfall over an ''infinite horizon.''
Actuarial experts are deeply divided about the value of such long-term projections, but most agree that the problem is real and needs to be addressed.
The basic dispute is whether Social Security is sustainable in its current form, as a system that provides guaranteed retirement benefits on a predictable formula.
Administration officials argue the long-term demographic trends are so ominous the system cannot be patched up. The only real solution, they say, is to convert much of Social Security from a government-guaranteed program to a system of individual savings accounts and private responsibility.
That was in part what happened after the financial crisis in 1983.
A bipartisan commission headed by Alan Greenspan, now chairman of the Federal Reserve Board, staved off a collapse by hammering out a plan of payroll tax increases and a gradual postponement of the normal retirement age to 67 from 65.
The changes succeeded, but they were only intended to keep Social Security solvent for 75 years, until 2058. Even if the changes achieve that goal, analysts say the program would still face a huge long-term deficit because the number of retirees will soar in the years after 2058.
''What people forget is that the baby boom is not like a pig in the python,'' said Kent Smetters, an associate professor at the Wharton School of the University of Pennsylvania and a former senior official in Bush's Treasury Department.
''If you just balance it over the next 75 years, it just means we have to come back and do the same thing all over again about 15 years from now,'' Smetters said.
Even so, critics of the administration contend that Social Security is far stronger today than at many points in the past.
The Social Security trust fund has been running annual surpluses for more than two decades. It is expected to keep running operating surpluses until 2018, but it will actually expand for 10 more years because of the interest it receives from Treasury bonds.
Bush's Social Security campaign is also likely to include assertions that the trust fund is ''empty,'' because the government has already used the annual surpluses to finance its operating deficits.
The trust fund is ''all trust and no fund,'' wrote Rich Tucker, an analyst at the Heritage Foundation, a conservative research group that strongly supports Bush's approach.
But analysts say it is wrong to imply that the trust fund will not pay benefits, because the government could only avoid payment by defaulting on its Treasury bonds, in effect declaring bankruptcy. The consequences would be so catastrophic for the government and financial markets few economists consider it plausible.
Most analysts, including many who support Bush's approach, contend Social Security's problems can be eliminated by changing benefit formulas and taxes.

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