So having been re-elected with the help of the American Taliban, the Bush Administration's first order of business is apparently to bestow a multi-billion dollar windfall on the securities industry, namely, by beginning the privatization of Social Security, that creation of the New Deal in the 1930s that dramatically reduced poverty among the elderly. Economist Max Sawicky says what needs to be said about this latest giveaway to the super rich:
Workers have paid and will pay enough into the Social Security Trust Fund to finance full benefits until 2042. The Federal government is obligated to redeem its debt to the Trust Fund with its own separate revenues, chiefly the income tax. The fact that G. Bush has gutted the income tax is his own damn fault, and somebody will have to reverse that decision if the debt to beneficiaries is to be honored.
Do you want to make provision now for shortfalls in the program in 2042? Are you an idiot? Nobody knows what kind of economy we will have in 2042. Your geniuses in the Bush Administration forecast a deficit of $525 billion for this past fiscal year in January. It turned out to be $413b.
The increase in Social Security expenses over the next forty years is about two percent of GDP. Since 2000, our tax revenue has declined by over three percent of GDP. Do you think forty years is insufficient time to make adjustments of this magnitude?
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Note that if you [were to] set up these individual accounts, assume ZERO administrative costs and no bad luck (everybody gets average returns), assume nobody has the misfortune to retire during a years-long down market, you still don't come close to closing the Social Security shortfall, come 2042. The benefits of private equities offset a bit of benefits the Gov would have to pay, over and above the simple shift of benefits from public to private. You defer the year of Trust Fund exhaustion is all.
The fundamental problem, such as it is, is that payroll taxes devoted to the old age benefit component of Social Security are insufficient to cover future legislated benefits at present. This is true whether you maintain the status quo, or switch some of the contributions to a separate account.
The simple answer is that the U.S. Government, by virtue of its power to tax, can easily finance Social Security, indefinitely. There are fair and unfair ways to do it, but the ability to do so is not in doubt. Suppose there was no Social Security? Could the nation's economy provide the retirement consumption of the elderly for the foreseeable future? That's what it has to do anyway, public program or no program, since someone who isn't working is consuming goods and services produced by someone who is.
What would I do, supposing 2042 approached and circumstances were as they are currently projected? I would do a combination of payroll tax increases, increases in the retirement age (ideally voluntary, and with adequate advance notice), a slowdown in benefit indexing, and some general revenue infusions. There is no need to do any of this for some time.
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