- It is has been dubbed "the fake crisis" by
its critics, and there are many. Since re-election, the Bush administration
has been aggressively arguing that the social security system, which pays
cheques to America's elderly, is facing insolvency.
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- President George Bush insists the system is in need of
dramatic reform if it is to avoid going broke. At the heart of his solution
is partial privatisation; allowing individuals to divert tax dollars into
personal accounts that would be invested in the stock market and carry
the attendant risks and rewards.
-
- It would be the most radical reform of social security
since the New Deal came into being 70 years ago and, as one commentator
has noted, do more to dismantle the programme than any of Mr Bush's Republican
predecessors managed to achieve.
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- The move is an expression of the political capital Mr
Bush believes he gained in last November's election. The administration,
though, has, unwittingly or not, whipped up a red-hot domestic controversy
to rival that surrounding its foreign policy. And there has been an equally
forceful backlash.
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- "The people who hustled America into a tax cut to
eliminate an imaginary budget surplus and a war to eliminate imaginary
weapons are now trying another bum's rush," the economist Paul Krugman
wrote in the New York Times.
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- Democrats are in the mood for a fight. Senate Democratic
leader Harry Reid described the Bush plan as a "disaster for the most
successful social programme in the history of the world".
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- The administration already appears to be losing control
of the debate. The proposals are too heretical even for some Republicans
to take. Representative Bill Thomas of California, chairman of the house
panel that handles social security, and senator Olympia Snowe, a moderate
Republican on the senate finance committee, both urged caution over the
weekend.
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- "I think 'problem' is really what we're dealing
with," rather than crisis, Mr Thomas said on NBC. Although by suggesting
that retirement ages based on gender, race and occupation should be considered
he created his own problems.
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- Ms Snowe on CNN also played down the sense of crisis.
"First of all we have to reach a consensus on the level of urgency
and the magnitude of the problem," she said. There are she added "various
scenarios and interpretations".
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- "The existing program, as it has been developed
in the last 70 years, provides a stable monthly income that has prevented
seniors, almost 50%, from falling into poverty. I don't think we want to
erode the principles of that system," she said.
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- Some 47 million Americans receive social security cheques
of an average close to $1,200 a month. Around two-thirds of pensioners
rely on social security for the majority of their income. For 20% it is
their sole source of support.
-
- At present more is paid into the system than is paid
out. That surplus goes into a trust fund and by law is invested in US treasuries.
-
- As baby boomers reach retirement age, however, the system
is projected to go into deficit in 2018, and cash will start to be withdrawn
from the trust fund. How long it will be necessary to dip into the trust
fund and whether it will be enough to get past the baby boomer blip is
anyone's guess.
-
- The Congressional Budget Office predicts it will run
dry in 2052 - the administration forecast is 2042. Over the next 75 years
the social security trustees predict a shortfall of $3.7 trillion.
-
- Others argue that if the economy keeps growing, that
won't happen. Even if it does, the payroll taxes the fund the system are
still expected to be enough to cover 70%-80% of benefits.
-
- Roger Lowenstein, author of the book Origins of the Crash,
questions the assumptions put forward by the administration.
-
- "The actuarial view is that the system is probably
in need of a small adjustment of the sort that Congress has approved in
the past," he said in a recent exhaustive article in the New York
Times.
-
- "But there is a strong argument, which the (social
security) agency acknowledges is a possibility, that the system is solvent
as it is."
-
- The real issue, Mr Lowenstein pointed out, could be that
the government has been spending the social security surplus and will need
to find the cash to repay its debts from 2018, causing even larger federal
deficits down the line.
-
- The administration has so far been sparing in the details
of its proposals, with more expected at the president's state of the union
address next month. The plan, though, is expected to follow the opinion
of a commission set up to examine social security during the president's
first term.
-
- The private accounts, diverting around one-third of individuals'
payroll tax, is the central idea.
-
- But the private accounts fail to fill the administration's
projected funding gap. To achieve that, the proposal circulating in Washington
would change the way a retiree's payment is worked out.
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- Today he receives an amount indexed to wage increases.
That would shift to price indexing. Because inflation has grown in the
past far slower than wages, it would lead to benefits being cut by 40%
in real terms by 2075, according to some estimates.
-
- The other issue thrown up by private accounts is the
immediate impact on federal debts. By allowing younger workers to shift
cash away from the trust fund, the Bush administration would starve the
system of a large chunk of revenue. The government would be forced to borrow
a further $2 trillion in the next 10 years on top of the already record
$5 trillion deficits run up in the Bush administration's first term.
-
- Wall Street's role in managing the funds is also controversial.
Investment bank fees would effectively be deducted from social security
taxes.
-
- Opponents argue instead that the Bush administration
is creating a climate of fear simply to push through partial privatisation
as part of its ideological efforts to create an 'ownership society'. The
system, if it needs fixing, could be adjusted with moderate tax increases
or benefit cuts.
-
- Democrats have argued for raising the ceiling on the
payroll taxes that fund social security above the current $90,000 cap and
lifting the retirement age.
-
- Laura D'Andrea Tyson, a dean of the London Business School,
writing in BusinessWeek, points to another easy solution.
-
- Over the next 75 years the Bush tax cuts, largely aimed
at wealthy Americans, are projected to cost between $10 trillion to $12
trillion. Simply paring the cuts back by a third and putting the cash into
social security would cover any funding shortfall.
-
- Instead, through the introduction of private accounts
and increasing the federal deficit even further, President Bush, she said,
is "transforming an imaginary crisis into a real one".
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- Guardian Unlimited © Guardian Newspapers Limited
2005
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- http://www.guardian.co.uk
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