The Bush Proposals for Social Security Are About Dismantling the Current S

[RedEarth]

Published on Monday, January 10, 2005 by the Long Island, NY Newsday
The Bush Proposals for Social Security Are About Dismantling the Current System - and Not Saving It
by Ted Marmor and Jerry Mashaw

President George W. Bush has promised to make Social Security secure for future generations, but claims not to have decided on the details for doing so. Perhaps not, but the trial balloons are getting pretty thick over the Rose Garden.

The emerging plan has three crucial elements. First, permit diversion of part of workers' FICA taxes into private accounts. Second, change the Social Security benefit formula from a wage-indexed to a price-indexed system. Third, exclude all proposals for increasing Social Security trust fund revenues if they involve any increases, however small, in anyone's taxes.

The first element, private accounts, does nothing to make Social Security financing secure. As a number of astute commentators have correctly argued, this part of the plan makes the short-term financing problem much worse. It can make the long-term picture better only by indulging in pie-in-the-sky economic assumptions. This balloon is suspended by nothing but hot air. Unfortunately, too many press reports simply repeat the illusions in the name of journalistic "balance."

The benefit formula change does make a difference. Indeed, it can bring the system back into close actuarial balance while preserving the purchasing power of today's benefits. Sound great? It's not. Indeed, this plan to secure Social Security is the exact equivalent of doing nothing at all.

To see this, just remember a basic principle from high school algebra: Things equal to the same thing are equal to each other. If no changes are made in taxes or benefits, Social Security's actuaries project that, after 2042, Social Security will be able to pay only about 72 percent of promised benefits. Changing the promise by changing the benefit formula speciously solves this problem. But do the math. It can only do so by making post-2042 benefits equal to the payment of 72 percent of currently promised benefits. This proposal, purged of its wage-index versus price-index technical jargon, is simply a 28-percent benefit reduction - the same thing the actuaries say would happen if we did nothing at all.

Is this a fair and sensible way to fix Social Security financing? Clearly not. The current formula is meant to keep the standard of living of pensioners in a stable relationship to that of wage earners, with price-indexing pensioners steadily dropping behind. By 2050 wage earners are predicted to have a 40-percent higher standard of living than today's workers. Social Security pensioners would be stuck at the living standard of 2005

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