Denver Dailies Offer False Choices for Social Security
by Ari Armstrong, January 25, 2005
I don't get it. The editorial board of the Rocky Mountain News made a set of claims about Social Security, and I thoroughly demolished those claims. Then the News made the same set of claims while pretending my critique doesn't even exist, even though parts of it have appeared on the pages of the News.
Similarly, the editorial board of the Denver Post repeated claims that have been rebutted in various forums. It's enough to make a person wonder whether, at least on this issue, the editorial columns in Colorado's two major newspapers are motivated more by partisan politics. That said, both papers have offered space for my views, which I appreciate. And often I am impressed by the wisdom of the editorial pages. Still, it would be nice if the editorial writers recognized the force of counter arguments when it comes to Social Security.
The papers offered dueling views on January 25, neither of which is satisfactory.
The News states, "President Bush's plan is to eliminate the funding shortfall over time by allowing younger workers to invest a share of their Social Security tax into private accounts, where at market rates they could build up a retirement nest egg."
The News's summary is false. First, workers are not "allowed" to use these accounts -- they are forced either to adopt the accounts or to continue to pay into Social Security. Some choice. And the accounts are not "private," they are instead significantly controlled by the national government. The funds are nominally owned by workers, true, but the funds may be used only according to the dictates of national politicians.
Second, there is nothing about forcing young workers into mandatory, regulated accounts that helps to "eliminate the funding shortfall." The two things are entirely unrelated. What "eliminates the funding shortfall" under Bush's plan are the deep cuts in future Social Security benefits. In exchange for these cuts, workers will be allowed to reduce the money they pay into Social Security, forced to direct that money to regulated accounts, and forced to endure more deficit spending.
The essential point the News ignores is that there's no reason to require the money be spent on mandatory, regulated accounts. Instead, benefits could be cut, the Social Security tax could be cut, and workers could simply be allowed to keep that money, to do with whatever they want. The mandatory, regulated accounts are superfluous. They constitute the imposition of a new national program of forced savings controlled by the government.
At least the News recognizes the so-called "transition costs," "ranging from $700 billion to $2 trillion over the next decade." The News continues, "[P]utting money into personal accounts would speed the point at which Social Security began running a deficit (now projected to be 2018)." This is true, and it is a major reason that I endorse a phase-out plan rather than any sort of opt-out plan. A phase-out plan could slowly raise the pay-out age, and/or cut benefits in other ways, in such a way that the Social Security tax steadily decreased over time, without any deficit spending, leaving workers with increasing freedom to control more of their income.
Thankfully, the News condemns the proposal to raise taxes by bumping the limit on income that is taxed by Social Security. Instead, the News endorses the part of Bush's (possible) plan that is compatible with a phase-out plan: "The president's plan reportedly favors handling part of the costs by indexing benefits to new recipients by price rather than wage inflation, thus somewhat slowing the growth of future benefits."
The Post mocks Senator Wayne Allard for claiming the unfunded liabilities of Social Security are $28 trillion. The Post writes, "A Google search found no report of the $28 trillion Social Security debt figure that Allard cited. Instead, it's Medicare that faces a $28 trillion shortfall over several decades, says the National Center for Policy Analysis."
However, there are estimates in line with what Allard suggested. For instance, Michael Tanner of the Cato Institute writes, "Overall, Social Security now faces unfounded liabilities in excess of $26 trillion." Most people seem to rely on an estimate of around $10 trillion, but any estimate depends upon defining the future time period and predicting economic activity over the coming decades -- something that's impossible to do with any accuracy. The important point is that, absent changes, Social Security will run a deficit of many trillions of dollars in the coming decades. [February 3, 2005, update: Tanner now writes, "Overall, Social Security's unfunded liabilities total nearly $12 trillion, and the longer we wait, the worse it gets."]
The Post continues, "Allard's staff said the figures came from the Congressional Budget Office, but a CBO report actually portrays a different and subtler scenario. The CBO did in fact note the 2018 date, but it also says Social Security has enough income and reserves to pay all current benefits until 2052. After that, the system could still pay 80 percent of the now-promised benefits."
The Post's analysis mirrors that of Paul Krugman, who offered a misleading account of the CBO's numbers, as I describe. Thankfully, the Post adds, "The problem is how the rest of the federal government's operations can be funded when they can no longer borrow from the Social Security trust fund."
The Post argues "the government" can be trusted to "repay Social Security." Somehow the Post seems to think of the government as a third party with independent wealth that can be tapped. "The government" won't pay back a single cent. Instead, "the government" will force future tax payers to "repay Social Security." The Post also suggests, "Treasury bonds are considered the world's safest investments." Yet government bonds properly aren't considered "investments" at all. A real investment goes to fund capital production, not the forced redistribution of wealth or the salary of some pencil-pushing bureaucrat.
The Post makes one terrible suggestion: impose the Social Security tax on income over $90,000 per year. The Post also makes a very sensible suggestion in line with a phase-out plan: "raise the age at which younger workers (who are decades from retirement) can collect Social Security..." The Post also correctly points out (as does the News) that Bush's plan will require more short-term deficit spending.
Though the News and the Post seem to take opposing views on Social Security reform, neither paper dares to endorse a solution compatible with free markets. Both papers share the assumption that the national government should control 12.4% of workers' income; the only debate is over how the government should control that money.
The Denver Post complains about Bush's proposed "radical Social Security reform." Bush, a radical? Ha! The Post has merely engaged in name-calling. If "radical" means simply "far-reaching," then few programs were as radical as the imposition of Social Security. If the Post were really against so-called "radical" changes, then it would call for phasing out Social Security.
If phasing out Social Security is "far-reaching" in today's political climate, then a "radical" reform is precisely what justice demands. Far-reaching reforms can be good; for instance, the abolition of slavery by any account must be considered a "radical" change. If phasing out a system that squashes America's working poor and middle class, creates severe dependency on the national government, limits economic progress, encourages sloth and irresponsibility, and violates individual rights on a massive scale is "radical," then any sensible person demands radical reform. Unfortunately, sensible reform is not even considered, much less endorsed, by the editorial writers of Denver's major papers.
For additional analysis, please see Social Security: Collected links.