Bush Eyes Privatizing Social Security in Second Term

heres the beauty and elegance of his proposals. We kill off the old people who are still collecting SS and Medicare. this can be done by bollixing up thhe medical coverage and eligability . We then start with a clean slate.

Easy Fixes For Social Security

By Edith U. Fierst
Thursday, November 18, 2004; Page A39

The president's determination to partially privatize Social Security stems from ideological reasons. But in fact the projected Social Security deficit is small enough -- 1.89 percent of payroll, under the Social Security trustees' intermediate assumptions (neither optimistic nor pessimistic) -- that a major revision to the system is not necessary. The deficit can be remedied with a few discrete changes in the program, all of which are surprisingly easy to understand and accept.

The first is to raise the earned income on which the Social Security payroll tax is assessed and benefits are paid. At present the maximum is $87,900 a year, subject to annual indexing to wage growth. But it could be raised gradually over several years to 90 percent of covered earnings of individuals, from its current level of about 85 percent, and indexed thereafter. If that were done, the additional payroll tax paid by the 6 percent of earners who earn more than $87,900 would reduce the long-range deficit by 0.61 percent of payroll.






A second proposal is to keep the tax on estates worth $3.5 million and more and dedicate the proceeds to Social Security. At present the tax applies to estates valued at a minimum of $1.5 million. In 2009 the exemption rises to $3.5 million and the following year the estate tax is scheduled to end. Dedicating the tax on estates worth $3.5 million and over, and retaining it, would reduce the long-range deficit by another 0.6 percent of payroll.

A third change would be to bring all newly hired public employees under mandatory coverage of Social Security, thereby reducing the long-range deficit by about 0.22 percent of payroll. About 6.7 million state and local government employees are currently exempt, virtually the only workers not covered by America's retirement system. Instead these employees are covered by plans operated by their employers. For long-term employees, the benefits of state and local government plans are often greater than those paid by Social Security. But these plans, unlike Social Security, are not portable, so employees who change jobs or employers may lose their coverage. If they become disabled before acquiring substitute coverage, they may be without disability benefits. Furthermore, the dependents of public employees exempt from Social Security, even employees fully covered by state and local government plans, are unlikely to be protected by disability, spouse or survivor benefits.

If coverage were to be broadened to include newly hired public employees, the governments involved would need time and possibly financial help to phase in the new coverage. Delicate negotiations between these governments and public employee unions might be required, but the example of how smoothly newly hired federal employees were brought under mandatory coverage and a revamped federal retirement system in 1984 would be a good model.

The final change would be to adopt the more accurate formula for cost-of-living increases designed by the Bureau of Labor Statistics and in use by many programs. Using that formula would reduce the long-range deficit by 0.3 percent of payroll.

Delaying retirement age seems like a common-sense solution, but it would be a mistake. Many people retire early for good reason, such as physically demanding work, family responsibilities or poor health. Social Security permits anyone to retire at age 62 with a reduction in benefits. The reduction for those who retire at 62 in 2004 is 24.17 percent of benefits, going up to 30 percent for those who retire at 62 when the normal retirement age reaches 67 in 2027. Typically, early retirees have slim resources other than Social Security, so if the normal retirement age were raised further, the resulting greater reduction in benefits could be impoverishing.

Under the intermediate assumptions of the Social Security trustees, these recommended changes would save over three-quarters of the projected deficit -- which in any event won't threaten payments before 2042. If the lower deficits estimated by the Congressional Budget Office are right, they would wipe it out.

Guaranteed benefits after these changes would be far better than privatized accounts, full or partial, because:

• Individual accounts are inevitably insecure when the market goes down or the worker makes poor investments.

• With private accounts, but not Social Security, the retiree runs the risk of outliving benefits unless he or she purchases an annuity, usually at considerable expense.

• Administrative costs, now about 1 percent of benefits, would go up because individual accounts would have to be administered separately and commissions paid.

• Spouses, survivors and other dependents of workers would lose their benefits if the worker decides to stop sharing with them.

Moving to privatization, even partial, would also be enormously expensive; the government would have to pay for benefits for older retirees if contributions of younger workers were to go into their own private accounts.

In short, privatization unnecessarily risks the security of Americans during retirement or disability. Guaranteed benefits under Social Security can and must be saved.

The writer was a member of the Clinton administration's Social Security Advisory Council.

If I was still in my earning years subject to FICA, I sure as Hell would be for this proposal.

And, at age 70 drawing SS, I am still for it.

OP-ED COLUMNIST
Inventing a Crisis
By PAUL KRUGMAN

Published: December 7, 2004

Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse. Nonetheless, the politics of privatization depend crucially on convincing the public that the system is in imminent danger of collapse, that we must destroy Social Security in order to save it.

I'll have a lot to say about all this when I return to my regular schedule in January. But right now it seems important to take a break from my break, and debunk the hype about a Social Security crisis.

There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline.

Right now the revenues from the payroll tax exceed the amount paid out in benefits. This is deliberate, the result of a payroll tax increase - recommended by none other than Alan Greenspan - two decades ago. His justification at the time for raising a tax that falls mainly on lower- and middle-income families, even though Ronald Reagan had just cut the taxes that fall mainly on the very well-off, was that the extra revenue was needed to build up a trust fund. This could be drawn on to pay benefits once the baby boomers began to retire.

The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.

It's true that the federal government as a whole faces a very large financial shortfall. That shortfall, however, has much more to do with tax cuts - cuts that Mr. Bush nonetheless insists on making permanent - than it does with Social Security.

But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government.

If the trust fund is meaningless, by the way, that Greenspan-sponsored tax increase in the 1980's was nothing but an exercise in class warfare: taxes on working-class Americans went up, taxes on the affluent went down, and the workers have nothing to show for their sacrifice.

But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own.

There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success.

For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.


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