[My outrage against Moynihan put much more neatly]
New York Times
JUL 22, 2001
2016 and All That
By PAUL KRUGMAN
I knew that the commission on Social Security reform appointed by
George W. Bush would produce a slanted report, one designed to bully
Congress into privatizing the system. But the draft report released
last week is sheer, mean-spirited nonsense.
The commission, in an attempt to sow panic, claims that Social
Security is in imminent peril that the system will be in crisis as
soon as 2016. That's wildly at odds with the standard projection,
which says that Social Security reserves will last until 2038. And
even that projection is based on quite pessimistic assumptions about
future economic growth and hence future payroll tax receipts. If you
use more optimistic assumptions say, the assumptions in the budget
forecasts that were used to justify Mr. Bush's tax cut the system will
still be financially sound in 2075.
So how did the commission reach its pessimistic conclusion? Through a
truly Orwellian exercise in doublethink the art of believing two
mutually contradictory things at the same time.
It's true that in 2016, according to (pessimistic) projections,
benefit payments will start to exceed payroll tax receipts. By then,
however, the Social Security system will have accumulated a
multitrillion-dollar "trust fund." Just as a private pension fund uses
earnings on its assets to pay benefits, the Social Security system can
use earnings from this trust fund to pay benefits. And that trust fund
will extend the life of the system for decades, perhaps indefinitely.
But the commission declares that these accumulated assets aren't
"real," and don't count as resources available to pay future benefits.
Why? Because they are invested in government bonds perfectly good
assets when they are accumulated by private pension funds but
worthless, says the commission, when accumulated by a government
agency.
Does this make any sense? There is a school of thought that says that
Social Security shouldn't have a separate budget, that Social Security
receipts should be regarded simply as part of general revenue, and
outlays as part of general expenditure. But in that case it's hard to
see why we should get worked up about 2016: who cares if the payroll
tax, which is only one of many taxes, collects less money than the
government spends on retirement benefits, which are only one of many
government expenses? Social Security benefits can be paid out of the
general budget a transfer of revenue that is clearly justified if
payroll tax receipts have meanwhile been used to pay off the national
debt, releasing large sums that would otherwise have been consumed by
interest payments.
Alternatively, you could say that for political reasons it's important
that Social Security have its own separate account. But in that case,
we should count government bonds in the trust fund as real assets,
just as we would if Social Security were a private pension fund.
(Here's a proposal: let's launder the trust fund by putting it in
private banks, which then buy government bonds. Will that make the
assets "real"?)
So the commission is trying to have it both ways. When Social Security
runs surpluses, it doesn't get any credit because it's just part of
the government. But when it runs deficits, Social Security is on its
own. This twisted logic in effect expropriates all of the extra money
workers have paid into the system since 1983, when Senator Daniel
Patrick Moynihan, among others, pushed through an increase in payroll
taxes an increase whose purpose was to build up the trust fund that
the commission, co-chaired by Mr. Moynihan, now says isn't real.
And how big will the Social Security deficit be once the trust fund
has been expropriated? The commission says 37 percent of payroll tax
receipts, which sounds immense; but that's only about 2 percent of
G.D.P. That's an interesting number: it's about what the federal
government now pays in interest on its debt the debt that Social
Security surpluses are being used to pay off. Oh, and there's another
budget item that's about the same size as the putative Social Security
shortfall: the Bush tax cut, which will eventually reduce revenue by
about 1.7 percent of G.D.P.
There is a case for reforming Social Security; there is even a case
for privatization. But we can't have a meaningful debate about reform
unless the parties to the debate are willing to discuss the issues
honestly. And the members of the commission, including Mr. Moynihan,
have just disqualified themselves.
Copyright 2001 The New York Times Company