The most disingenuous of the relatively new tactics the
opponents of Social Security reform have contrived is the “There Is
No Crisis” (TINC) argument. Dean Baker and Mark Weisbrot were among the
first to popularize this argument, with their 2000 book, Social
Security: The Phony Crisis. In 2001 Paul Krugman picked
up the torch and has been carrying it ever since. There is even a TINC website set up by
BlogPac, a project spearheaded by a host of radical left-wing
bloggers.
Of course, some of this is just rank opportunism. In a recent editorial panning personal accounts, the
New York Times editorialist stated “the claim that Social
Security is in crisis” is “essentially bogus.” How the
Times can change! Back on July 7, 2001, in an editorial
bashing the Bush tax cut, it wrote:
The ballooning deficits of [the 1980s], however, will
be dwarfed by the ones that arrive when Social Security and
Medicare go into the red. Delving into their trust funds now would
bring that financial crisis, usually assumed to be a decade away,
several years closer.
It followed that up with this gem on September 9, 2001:
…by rescinding some of the tax cuts affecting
the wealthiest 1.8 percent of taxpayers before they take effect in
coming years, Congress could free up at least $1.25 trillion over
20 years — enough money to shore up Social Security and pay for
other high-priority items, like a prescription drug program for the
elderly, more spending for education or even some sort of
Social Security individual accounts. [Italics
added.]
So when there is a tax cut to undo, not only does Social
Security face a crisis, but personal accounts might even be a good
idea!
Yet it requires more than a charge of hypocrisy to reveal the
errors underlying TINC. So let’s take a look at the TINC
variations:
Not A “Crisis,” Just A “Problem.”
Washington Post editorialists recently wrote that Social Security “is less a crisis
than a problem.” Like all reform opponents who parrot that line,
they never define the difference between a crisis and a problem.
One might think that a system whose surplus will
begin declining in 2009, that will begin taking in less in taxes
than it pays out in benefits in 2018, and will cost taxpayers about
an extra $25 trillion over 75-years is a system headed for a
crisis. But reform opponents have “answers” for that too:
The Trust Fund Means Social Security Is Fine Until At Least
2042: Mark Weisbrot recently made this argument in the
Washington Post:
The disappearing trust fund: Some
people say that Social Security will run into trouble in 2018. But
this is like saying that Bill Gates will be strapped if he works
only part time. He will still have $40 billion in assets, enough to
keep him living well for a long time.
Similarly, the Social Security trust fund will have more than
$3.7 trillion in today’s dollars in 2018. Combined with payroll tax
revenues, that is enough to cover promised benefits until 2042, the
trustees’ report says.…
“But the trust fund is only holding I.O.U.’s — just
pieces of paper!” Another canard: All bonds are I.O.U.’s.
Those “pieces of paper” are backed by the full faith and credit of
the U.S. government, which has never, ever defaulted on its
bonds.
What Weisbrot neglects to mention is that the money to pay off
the bonds in the trust fund will have to come from the taxpayers.
In short, the taxpayers will have to fork over more than $5.4
trillion to pay off the bonds the trust fund redeems between 2018
and 2042. But reform opponents like Weisbrot ignore the effect that
paying off the bonds will have on taxpayers, and simply point to
the trust fund and say, “See, Social Security is solvent for many
years!” (To see how surreal this can get, go here.) It is important to realize that the trust
fund is a future liability for taxpayers, because most of the other
variations of TINC assume it is an asset.
Improved Demographics And Higher Productivity Will Solve
The Problem: Kevin Drum tried this approach:
Robert Gordon, a respected economist at Northwestern
University, recently took a fresh look at long-term economic
trends. His conclusion? The trustees are continuing to be far more
pessimistic than the evidence warrants. His projections, based on
recent increases in national productivity as well as more
reasonable estimates of immigration, show an economic growth rate
for the next two decades that’s nearly a percentage point per year
higher than the trustees’ projections.
If you plug Gordon’s more realistic numbers into the model that
the trustees use to project the health of Social Security, it turns
out that the program is solvent for the rest of the century. In
other words, Social Security needs no changes at all. Everyone
alive today, young and old, will be covered in full when they
retire. Surprised?
However, plugging in Gordon’s numbers does not mean Social
Security will take in enough in payroll taxes to cover benefits for
the next century. In an email, Drum informed me that, yes, his
projections still relied on the bonds in the trust fund. In other
words, even with better demographics and productivity, taxpayers
will still have to come up with extra money to meet Social
Security’s benefits.
It’s also instructive to read what Professor Gordon concluded about his predictions: “In the end,
this exercise in crystal ball gazing is a humbling
experience….Neither economics nor statistics provides much
guidance about the measurement of uncertainty in making these
forecasts, and part of this uncertainty concerns how much of the
past to use in making future projections.” In other words, let’s
not be too confident about any projections.
The 75-Year Shortfall Is Only $3.7 Trillion: In a
recent article for the Sunday New York Times,
columnist Roger Lowenstein attempted to paint reformers as
inflating the long-term Social Security deficit:
Cato, a libertarian policy center founded in the late
1970’s, has been arguing for 25 years that Social Security is on
the verge of crisis. In a recent position paper, [Michael] Tanner
wrote that Social Security faces a horrendous unfinanced liability
of $26 trillion over 75 years. In a footnote, he cited the 2003
trustees’ annual report. Actually, the trustees’ intermediate
projection is for a deficit, over 75 years, of $3.7
trillion.
True, $3.7 trillion does seem tiny when spread out over 75
years. Except that $3.7 trillion is not the 75-year shortfall; it
is the present value of the shortfall. I’ve explained this at some length previously, but in a
nutshell what this means is that the federal government would have
to invest $3.7 trillion right now to cover the 75-year
shortfall. The actual shortfall is much closer to Tanner’s
number.
A Small Alteration Of 1.89 Percent of Payroll.
Christian Weller of the Center for American Progress encapsulated this argument: “An immediate and
permanent increase of the payroll tax by 1.89 percent would allow
Social Security to pay all of its promised benefits for the next 75
years.”
Here’s how this works: Increasing payroll taxes 1.89 percentage
points extends the date which the Social Security system begins
paying out more in benefits that it receives in payroll taxes from
2018 to 2022. After 2022, the Social Security still has to redeem
the bonds in the trust fund to pay benefits; it’s just that it will
then have enough bonds, when combined with the higher payroll tax,
to keep paying full benefits for 75 years. However, it still means
the taxpayer will still have to shell out extra money, averaging
$360 billion annually after payroll taxes are no longer sufficient
to pay benefits.
A Small Alteration Of 2 Percent of GDP. Paul
Krugman painted this happy face on Social Security’s
insolvency about a year ago:
So does the Treasury report show a looming Social
Security crisis? No.
Social Security’s problem, such as it is, is a matter of
demography: as the population ages, the number of retirees will
rise faster than the number of workers. As a result, benefit costs
will rise by about 2 percent of G.D.P. over the next 30 years, and
creep up slowly thereafter.
Krugman is clever — I’ll grant him that. Two percent seems like
nothing. However, 2 percent of today’s GDP is about $238 billion.
Thirty years from now, it will be in the neighborhood of $400
billion. Not exactly chump change.
Not surprisingly, the Democrats are now echoing the TINC line.
Senator Byron Dorgan recently remarked, “If we let the president
successfully convince people there’s a crisis in Social Security
when in fact there is no crisis at all, then shame on us.” Yet it
is a long shot at best that TINC will take root in the public
mind.
Although ABC
News tried to spin it, a recent poll it conducted along with
the Washington Post showed that 25 percent of respondents
felt Social Security faced a crisis, while another 49 percent
thought it faced major problems. Reform opponents have a very long
way to go to persuade Americans that reform isn’t necessary.
Chances are they will only shave a few points off those
numbers.
Another indication that TINC won’t gain much traction can be
found at the TINC website. Websites managed by the big radical
bloggers are usually filled with left-wing troglodytes who
substitute snarky comments and gratuitous insults for serious
debate. However, the comments sections at the TINC website are
mostly empty. Apparently the left isn’t too excited by the
prospects for success of the TINC argument.
Perhaps that’s all for the best. The public debate is best
served by a discussion about how to fix the Social Security crisis,
not by a hoard of sophists trying to bamboozle us into believing
that it doesn’t exist.
