What precisely about the current Social Security “reform” debate makes it so hateful and repellent? Why–to quote Brookings economist Henry Aaron, normally a temperate establishment figure–are we headed toward “the My Lai of American social policy” if “partial privatization” reforms go through?
Make no mistake: As President Clinton plays television talk- show host to a series of “Town Hall” meetings and then convenes a White House conference later this year on “retirement security,” he will–all earnestness and concern–ask Americans to “think” with him about “what we need to do” to “fix” the system. But Americans need to think first about several crucial facts before they buy one more “big-picture” policy reform from the Man from Hope:
(1) Social Security isn’t broke–and doesn’t need the fixes Washington will propose.
A government advisory commission last year produced “exact” dates and dollars that gave apparent concreteness to the dimensions of the Social Security “crisis.” Starting in 2029, it calculated, Social Security won’t have enough income to cover more than 75 percent of the benefits it must pay to aging baby boomers. But the specificity is illusory, all lever-pulling and smoke-blowing from the Wizard of Oz. The projections aren’t economic (no even semi-sane economist does decades-long projections) but actuarial extrapolations based on assumptions that Social Security’s own actuaries know are fictitious at best. Tweak them ever so slightly–lift real wages by a quarter- or half-percent per annum, or immigration by a little–and the same actuarial “crisis” disappears entirely. Federal law has mandated these projections for years, but–as the actuaries know well–they’re redone every time they’re revisited because the methodology is so poor. Until recently, apart from a handful of Washington technicians, nobody paid attention to them–knowing what they were worth. (Just a few weeks ago, we got an example of the slipperiness of these projections: Last year’s economic growth moved Social Security’s projected crisis date three years, to 2032.)
But amid Washington’s bipartisan passion for “marketizing” America–the capital’s new “anti-Communist” consensus for our post-Communist era–you might think the numbers have come down from Moses. They haven’t.
(2) But–just for a moment–let’s pretend there
a crisis. What should we do?
Fairness, you might think, is the place to start. Most Americans pay more into Social Security than they pay in income tax. Yet polls show most Americans don’t even know that contributions to Social Security are “capped” at $68,400 in individuals’ wages. By excluding wages above that line–those earned by the top 6 percent of U.S. households–and by excluding all nonwage income (dividends, interest, capital gains, rents, etc.) from Social Security taxation, guess what the effect is? It’s enormously regressive.
Senators and representatives, who each make $136,673 a year, effectively pay at just half the rate of those earning below $68,400 yet receive the same maximum benefits as a middle-class worker at retirement–plus, of course, a hefty Congressional retirement package. Bill Gates likewise will get the same maximum benefits, but pays FICA only on his first ten minutes of income each year. Gates, of course, has $40 billion to tide him over; but 60 percent of U.S. workers retire without a private pension, and 66 percent of retirees count on Social Security for more than half their income.