Inventing a Crisis (Bush, private accounts, & ending Soc Sec saftety net)

[papau]

Latest news is that Bush is changing his original plan from 2 percent to 4 percent for the amount of Social Security taxes that younger workers can designate for private savings accounts, as he shows his compassion with a 2005 budget that holds down the growth of discretionary domestic spending to near zero, telling folks that the trust fund is meaningless, and that the Reagan/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".


http://www.nytimes.com/2004/12/07/opinion/07krugman.html?oref=login

December 7, 2004
OP-ED COLUMNIST
Inventing a Crisis
By PAUL KRUGMAN

Trivatizing 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.<snip>

[DireStrike]

1. Wow! So they can afford 2.5 shares of stock instead of just 2!

What a great plan for America!

AAAAAAAAAAARRRRRRRRRRRGGGGGGGGGGGGGGHHHHHHHHHHHHhhh!