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Joseph Huff-Hannon
Although the administration uses creative language in its press releases and public briefings, the end result is the same -- reduction of benefits. They propose to change the way in which benefits are calculated by pegging them to inflation as opposed to increases in your wages, so that benefits will be cushioned by figures calculated by the Federal government and not your employer.
As far as closing the fiscal gap, this approach would do wonders, but as economist Paul Krugman wrote in The New York Times: "It's true that you can improve Social Security's finances with privatization, as long as you also slash benefits -- just as you can kill a flock of sheep with witchcraft, provided [that] you also feed them arsenic."
Steve Hahn, spokesperson for the AARP, said, "It's good to put all ideas out on the table, and we would support raising the cap [above $90,000] as part of a combination of solutions, but it doesn't change the fact that the private accounts carve out the trust fund, and in the end makes the whole system less solvent." The AARP is the nation's largest lobbying group for retired citizens, or those older than age 50.
Based upon the premise that workers should be paid out what was originally promised to them, Hahn is against any benefit cuts. "The fairest way to do this is to keep the benefits indexed to the value of the dollar, and what wages can buy with that dollar. One of the solutions that we are looking into now is to invest some of the trust fund into a higher yield account, but not to break it up into millions of individual accounts."
Hahn's solution of course would require a cash-out from U.S. Treasury Bonds, and thus call-back those accumulated government IOUs built up during the past four White House administrations.
The bombshell is the issue of Social Security proposed debt. In order to continue paying Social Security benefits while current workers divert a portion of their payroll taxes into their personal accounts, the government would be required to borrow trillions of dollars over the next few decades in order to cover the transition costs. Vice President Dick Cheney admitted as much to Fox News Sunday on February 6th. "The government will have to borrow $754 billion over the next ten years, and trillions more after that. But the real cost over time is doing nothing. If we do nothing, then the system is going to go belly up. It's going to go broke."
This is the rub, and a big reason for much of the skepticism around the administration's proposal. Perhaps it has more to do with the messenger than the message. The same administration that has steered the federal government from historic budget surplus in the late 1990s, into equally historic deficits in only four years, now proposes taking on an astronomical level of debt to restructure a government program that operates in surplus.
The end result of restructuring will be less revenue for the government. And the sell is being pitched at the same time as the administration releases its fiscal year 2005 budget, which makes the tax cuts for the wealthiest 1 percent permanent, and cuts overall spending by primarily targeting programs in education, healthcare, and environmental protection for elimination. Thus far, this administration has used debt as a rationale for cutting government programs: That is for shrinking government, which in real figures has grown. Shrinking government has always been the stated aim of the conservative movement, with the exception of defense spending.
While the administration has amassed a new "coalition of the willing" (Wall Street, banks, the Cato Institute, and the Heritage Foundation) to push the privatization agenda, a significant counter-coalition is emerging (Center on Budget and Policy Priorities, AFL-CIO, and the AARP) to offer very different solutions. These range from scaling back the tax cuts for the wealthy, to lifting the income cap at which payroll taxes are levied ($90,000,) so that the wealthy would pay the same amount in to the system, proportionately.
Each of these proposals should be examined on its own merits, with the same critical eye given to the privatization scheme -- outside of crisis-mode. Likewise, a close look at the different experiences with private pension/Social Security reform, namely the experiences of Chile, Argentina, and the Great Britain, can help to give a little perspective on the issue, and to give some distance from the polarized political atmosphere of Social Security in the United States.
The war for and against Social Security change will be a bitter one. The people now running the Federal government, and those that bankrolled them are strategic, bold, and they fight for what they believe in. Their track record speaks for itself -- they've not lost one "crisis" campaign to date. This issue is as much a matter of ideology as it is an honest effort to tinker with, or remedy, a government retirement program which is currently working.
If we want to live in an "ownership society," do we want that ownership to be over government programs, or do we prefer to cash out and leave the government for those that do actually need its programs?
As privatization salespitches court today's younger workers -- already under the impression they will not have Social Security -- the decision will ultimately transition into their hands.
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