Krugman on the SS Commission report

Michael Pollak mpollak at panix.com
Sun Jul 22 15:40:17 PDT 2001


[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



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