Adapted from testimony to the New
York City Council, Subcommittee on Federal Affairs, ©
April 29, 1998.
Social
Security: The Phony Crisis
Helen Lachs Ginsburg
Before Social Security was enacted, organized
business and Republicans bitterly opposed it. For example, Congressman
John Taber, R-NY, said in 1935: "Never in the history of the
world has any measure been brought in here so insidiously designed
as to prevent business recovery, enslave workers, and to prevent
any possibility of the employers providing work for the people."
But due to fear of reprisals at the polls, most Republican
opposition collapsed.
Because of Social Security's popularity, current
critics are not as blunt, so they invented a crisis.
Before Social Security, nearly every county in the United
States had a poor house. If you were old, and without income or
family to take you in, that’s where you would land. Today, without
Social Security, about half of seniors would be poor. But Social
Security is not just a retirement system. Of the 45 million Americans
receiving benefits, more than 14 million are children, disabled
adults, or the spouses of deceased workers. So Social Security
provides a measure of basic income security to most Americans
and their families.
Underfunded?
It is important to realize that output produced decades
from now is what retirees alive then will consume. The milk we
drink, the medical care we get and everything else we buy except
antiques must come from current production. So to prepare for
a future economy that can support Social Security we need to invest--in
our environment, technology, infrastructure, and in the education
of young people, who will be our workers. Thus it makes good sense
to finance payments to seniors on a pa y-as-you-go basis from
future taxes on that higher income (paid into the Social Security
Trust Fund).
However, the deficits projected in 1998 by the Fund's
Trustees to start in 2032 are based on what former Labor Secretary
Robert Reich, once a Trustee himself, calls "wildly pessimistic"
assumptions. Underlying these predictions of disaster are projections
to the year 2075. In them, the Trustees assume the annual growth
rate of output (Gross Domestic Product) will average 2 percent
for nearly a decade and then settle down to a range of 1.3 to
1.4 percent though 2075. These rates are well below historic norms.
For example, from 1920 to 1995, a 75-year period that includes
the Great Depression, growth averaged 3.5 percent. Even in the
sluggish 1973-1995 era, it averaged 2.5 percent. Unemployment
is assumed to rise within a few years to 6 percent and remain
at that level until 2075.
But when the Trustees use different, more realistic
assumptions, future deficits disappear. The Trustees "low cost"
estimate assumes the annual growth rate will average 2.5 percent
for a decade but thereafter, through 2075, only around 2.1 percent.
These rates are still far lower than for most of this century.
Unemployment is assumed to rise to 5 percent within a few years
and remain at that level through 2075. But using these assumptions,
there are no deficits at all during the entire 75 year period.
(Unfortunately, these projections are not used in the public
debate.) Recent lower unemployment has increased the Trust Fund
so much that the insolvency date of 2029, projected in 1996, has
been delayed by three years. Lower unemployment means that fewer
people are forced to retire early and more people pay into Social
Security; it means that employers are paying in more, too. So
fight for federal policies for jobs for all at decent wages
and you’re fighting for a secure Social Security system.
Incidentally, even if the deficits predicted in the
worst case assumptions occur and the Trust Funds are emptied,
this means only a modest shortfall. Why? Because Social Security
payroll taxes paid at that time would cover 75 percent of the
payments. To cover the rest, there are many options other
than the drastic ones being proposed. To get an idea of the relatively
small magnitude of this gap, it could be closed by raising the
Social Security tax by just over one percentage point on the worker
and the employer. But that would be a regressive way to finance
a shortfall and is not recommended. A more progressive way would
be for Congress to partially fund Social Security from general
revenues. President Jimmy Carter made a similar recommendation.
More recently, the noted economist Robert Eisner, a past president
of the American Economic Association and a Coalition Advisory
Board member, made such a proposal. Other approaches are also
possible. As long as Congress exercises its constitutional power
to tax, it can make good on Social Security and any other federal
obligations.
Too many elderly? Will there be too many
elderly for the working age population to support, so that "boomers"
can’t rely on Social Security? No. It is true that the
proportion of those 65 and over relative to those 20 to 64 is
likely to rise after 2030. However, the country also has to support
children. So the proportion of all who need support--children
plus elderly--by the working age population will be considerably
lower than in the years 1960 to 1975. The country supported
baby boomers in their childhood. We had to feed them and build
schools. It didn’t bankrupt the country. We can afford their retirement,
especially as we can expect output produced by each worker to
increase over time. The economy as a whole will be able to afford
their retirement, although their support may require slight financing
from general revenues.
Privatize? Privatization
of Social Security now being urged is a serious threat to the
income of elderly Americans. Wall Street, which is pushing the
idea, stands to make a fortune from managing accounts and many
vulnerable seniors will be the losers. Social Security is not
a trip to Las Vegas. It is the basic income guarantee for a large
part of America's elderly. It guarantees payments adjusted for
inflation that last as long as they live. You cannot outlive Social
Security checks even if you make it to 100 years. Social Security's
administrative costs are low--1 percent, compared to the 12 to
14 percent for private insurance. But what about the high returns
from stocks? There is no lifetime guarantee of income from stock
ownership, nor is there a predictable income. Furthermore, if
predictions of a slow growth underlying projected Social Security
shortfall should come true, past stock market returns cannot continue.
And, if the economy performs well enough to support stock gains
at these past rates, there cannot be a shortfall in Social Security.
Helen Lachs Ginsburg is Professor Emerita of Economics,
Brooklyn College, City University of New York and a member of
the Executive Committee, National Jobs for All Coalition.
See also Dean
Baker "Nine Misconceptions About Social Security," Atlantic
Monthly, July, 1998
|
