Michael Hiltzik
February 17, 2010
Like a
zombie tromping through a Hollywood gorefest, the idea of privatizing Social
Security still walks among us.
The last promoter of the idea that people should personally invest their Social
Security assets in the stock market was
President George W. Bush, in 2001. With the dot-com crash still ringing in
people's memories, the idea died in 2005.
The market hasn't yet recovered from its most recent crash, but the monster
unaccountably is back on its feet. This time it comes dressed up as part of the
"Roadmap
for America’s Future" recently unfurled by Rep. Paul D. Ryan (R-Wis.), the
ranking GOP member of the House Budget Committee.
The Roadmap is a retort to the charge that the Republican Party contributes no
ideas to the national debate on fiscal issues, only "no" votes in Congress. It's
a road map to the dismantling of federal social programs under the guise of
making them fiscally sound, while cutting taxes for the rich. (The plan
eliminates
taxes on capital gains, interest and dividends.)
Social Security comes in for particular abuse. Ryan states that "Social
Security's shrinking value and fragile condition pose a serious problem. . . .
To maintain the program's significant role as a part of the retirement security
safety net, Social Security's mission must be fulfilled . . . without
bankrupting future workers."
One doesn't want to be picky about an elected congressman's words, but with all
due respect, these words are pure bilge. They come straight from the talking
points of Social Security's historical enemies: conservatives who have never
believed that the government should play such an important role in people's
retirement planning, and mutual fund and insurance companies that hanker for the
business generated by millions of Americans looking for a profitable place to
park their retirement assets.
Social Security's value to the average American isn't "shrinking" --
it’s expanding. In 1962, it accounted for 30% of the income of Americans
aged 65 and older; in 2007 that figure was 36%. (These numbers come from the
Social Security Administration.) Given what's happened to most families'
financial assets since 2007, the percentage probably is even higher today.
Its "fragile condition"? Social Security runs an annual surplus and has done so
since 1983; no other government program can make that claim.
By the way, even when the program starts paying out more in benefits than it
collects in payroll tax, that's not a "crisis," as it's often portrayed -- it's
the expected outcome of changes implemented after 1982, when the tax was raised
sharply to provide a cushion against the coming wave of baby-boomer retirements.
The accumulated surplus in the program's trust fund at the end of 2008 was $2.4
trillion.
To address these nonexistent issues, Ryan would place a greater proportion of
people's retirement income at the mercy of the stock market, mocking the very
idea of a "retirement security safety net."
His privatization scheme would allow workers under 55 to place more than
one-third of their current Social Security taxes into personal retirement
accounts, with the ultimate goal of shifting most of that money into the stock
market. The enticement is that the stock market, over time, yields more than
other investment sectors, so future retirees will have a bigger nest egg than
they're promised today by Social Security.
Ryan offers two sweeteners to lure workers into the deal: Retirement income
attributable to the private accounts would be tax-free, and the government would
guarantee that whatever happens, benefits would be protected from inflation.
But as with every "guarantee" of financial wealth, this is a shell game. For one
thing, the guarantee has to be funded from the federal budget -- presumably by
borrowing. That's because Ryan's plan sucks revenue out of the program for years
before the ostensible gains from stock market earnings take root.
When Social Security's chief actuary
examined a Ryan proposal in 2008 (it's nearly identical to the Roadmap
provisions, as far as I can tell), he concluded that annual infusions from the
general fund totaling $4.3 trillion in present value would be required over a
long, 30-year transition period, from 2032 through 2063.
"The individual account plans don't hurt in the short term," economist
Peter A. Diamond of MIT, an expert on Social Security, told me this week.
"But over the medium term they hurt a lot."
Diamond observes that shifting any portion of the program's funding to the
general fund from the payroll tax, which is dedicated to Social Security and
Medicare, undermines the future of Social Security.
"Politically, dedicated revenue is much more secure than revenue you have to
take out of the annual budget," Diamond says. "The fact that we'll go through an
extended period with the money coming out of the annual budget puts Social
Security at risk. And the fact that to handle this we've got to do a whole lot
more borrowing puts the finances of the entire federal government at risk."
As the
Congressional Budget Office advised Ryan last month, the guarantee would
become even costlier "during periods of economic stress" like recessions -- for
that's when investment returns are most likely to fall below the inflation rate
and therefore trigger greater and possibly more politically sensitive infusions
from the government. One could argue that such major market reversals will occur
only rarely in any average worker's lifetime. But one could also point out that
we've had two in the last 11 years.
What is Ryan really up to? His Roadmap would achieve a goal that conservative
opponents of Social Security have cherished for decades: killing the program by
undermining its broad base of popular support. It would sap Social Security's
resources, increase its complexity and hammer a wedge between the currently
retired or near-retired (who would be guaranteed their current statutory
benefits) and younger workers and the future workforce (who would be
increasingly on their own). The term for this is "divide and conquer."
President Obama has drawn a bold line against this sort of tampering with Social
Security. His formal position on the program is that he "stands firmly opposed
to privatization and rejects the notion that the future of hardworking Americans
should be left to the fluctuations of financial markets."
One would hope that's enough to stop Ryan's plan in its tracks. But is it? The
actor Woody Harrelson delivered a star turn
in a recent picture as a vigilante who decapitated the walking dead with
tremendous brio. Can't we set him loose on the Roadmap?
Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at
michael.hiltzik@latimes .com, read past columns at
www.latimes.com/hiltzik, and follow
@latimeshiltzik on Twitter.
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