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September 04, 2002

Policy Break -- Social Security


Are you nervous about the future of Social Security? As an aging boomer with my stock portfolio in the crapper, I know I am. I mean, I try to keep up with all this public policy stuff, but it’s not easy with all the contradictory information out there.

For example, I checked out the website of “The Women & Social Security Project.” There I found a page on “The Privatization Debate.” Well, that sounded good—I mean, a debate sounds like a discussion of both sides of the issue, right? The headline made me a little nervous, though: “4 Ways to Win The Privatization Debate & Strengthen Social Security for Women.”

Well, I’m all for women. My wife and daughters are women. My best times have uniformly involved women (along with, you know, the odd controlled substance). The Women & Social Security Project website was put up by the The National Coalition of Women’s Organizations, a group of more than 100 women’s groups representing over 6 million women! Hell, I’ve been married for 15 years, I know better than to argue with 6 million women! I carried on. The pro-privatization side of the debate apparently got the first word in. It read, in full:

When They Say: "Social Security is going bankrupt.”

That was it. I’ll admit, I often feel stupid when I talk to women, but this made me feel really dense. Not only was it short on information, but I wasn’t even sure it was a complete sentence (that colon had me a little worried.) And anyway, who was this “They” going around saying such nasty things? Fortunately, right next to it was what appeared to be the “We” side’s response:

You Say: Fix it, don't scrap it…especially don't ‘fix it’ with a scheme that would destroy the intent of the program which is to provide a foundation of retirement/disability and survivor insurance.

Well, I don’t know about you, but that STILL left me wondering: IS Social Security going bankrupt? I mean, after Enron and Worldcom and all, maybe somebody’s been cooking the books. So I checked out another website: “Social Security’s Treatment of Postwar Americans: How Bad Can It Get?” by a couple of fellas named Jagadeesh Gokhale and Laurence J. Kotlikoff from Boston University’s National Bureau of Economic Research. They were a bit more specific on the question, if not very reassuring:

How large is the total present value imbalance of the [Social Security] system? If we discount all future taxes and benefits at a 3 percent real rate, we arrive at a present value imbalance of $8.1 trillion. This figure represents the difference between a) the present value of all future benefit payments and b) the sum of the present value of future payroll tax revenue plus the current [Social Security] trust fund.”

Yikes! What did these Social Security bozos do, use Arthur Andersen for their accountant and Ken Lay for their budget director?

ken lay.jpg
Ken Lay: Architect of Social Security?

And then Jagadeesh and Larry point out, in a rather spiteful tone, that this assessment is probably too LOW, because it assumes that people are going to STOP LIVING LONGER and it assumes the country will grow at a rate TWICE AS FAST as it did between 1975 and 2000. Double Yikes! Breathing deeply and trying to find my happy place, I flipped back over to the ladies’ site. They were much more calm (as I often count on women to be):

Modest, prudent changes will be enough to strengthen Social Security for the future so it can continue to "never miss a paycheck".

I turned back to Larry and Jagadeesh. Men! I thought. They were probably frothing at the mouth over nothing! (Hell, I’m a man and I do it all the time.) What did these overwrought testosterone jockeys think would have to be done to fix this piddling problem?

The immediate and permanent tax hike required to generate $8.1 trillion more in present value and, thus, eliminate the [Social Security] budget imbalance is 4 percentage points [of income] or 38 percent of the post-2000 [Social Security] tax rate of 10.6 percent…Under more pessimistic, but arguably more realistic assumptions, a more-than-6- percentage-point (close to a 50 percent) immediate and permanent payroll tax hike is needed to ensure that the present value of all future [Social Security] taxes plus the combined [Social Security] trust funds equal the present value of all future [Social Security] benefits. If such tax hikes are not enacted in the short term, even larger tax hikes will be required in the long term.

Damn! This was like finding out that not only had your girlfriend cheated on you, she cheated on you 17 times in one night! Then, remembering the “We” argument, I thought—“Okay, okay, so we need to pay a little more—well, actually, for those of us who are self employed and who pay both ends of Social Security taxes, a LOT more. But no matter, whatever the cost, we’d still be getting our disability and survivor insurance! Not even depressing old Larry and Jagadeesh can argue with that!

Of course, Social Security is an insurance as well as a net tax system.

Ha! I thought. Score one for the ladies! But then I read on:

But viewed as an insurance company, the insurance [Social Security] sells (or rather forces households to buy) is no bargain. The load charged averages 66 cents per dollar of premium. The bad deal that Social Security offers postwar Americans is, of course, payback for the great deal it offered and still offers prewar Americans. These generations got in at the beginning of the Social Security chain letter, and received very generous benefits compared with their tax contributions to the system.

This sucks! Big time! I’ve been putting money into this “chain letter” scheme for almost 30 years, and I’ve just been a sucker? I’m beginning to think there are some Congressmen out there who have an appointment to eat a knuckle sandwich. What happened to all my dough? Come on, ladies, I think, clicking back to their web-site, don’t let me down now—tell me something to cheer me up. Bingo, the chicks, er, the women come through:

Social Security is a better investment than stocks or bonds, once average rates of return are adjusted for risk. Taking risk into account, Social Security has much higher return than any mix of financial assets in private accounts.

Ahhh, this is much better. Obviously there’s a big heap of my money sitting in an account somewhere in Washington D.C. with my name written on it—in fact, apparently it’s been earning a HIGHER return than anything else on the market. Jeeze, that’s got to be one damn good investment! Curious as to how much moola has accumulated since the days of my very first paycheck, I look for the interest rate. Unfortunately, the ladies’ website goes kinda easy on specific numbers like that. I am forced to turn (reluctantly) to Larry and Jagadeesh. When I do, I have the distinct sensation that my hair is standing up like Gene Wilder’s in Young Frankenstein when the monster won’t wake up on the operating table. (Okay, so my imagery dates me):

…postwar cohorts [this means you and me], as a group, are receiving a roughly 2 percent rate of return on their [Social Security] contributions. Relative to the close to 4 percent safe rate of return currently available on inflation-indexed long-term government Treasury bonds, 2 percent is quite low, particularly given the fact that future [Social Security] payments and benefit receipts are highly uncertain…

Two percent? TWO LOUSY PERCENT? And it’s “highly uncertain” that I’ll actually get the dough? I could have done better putting the cash in a Christmas club account! Surely the ladies aren’t going to take this lying down?

There are no guarantees in the Stock Market! Saving and investing is great but not at the expense of the one guarantee that has never missed a paycheck…Social Security.

Are the ladies beginning to sound a little too cheerful or is it just me? I’m sure it’s just my bad nature speaking, but they’re beginning to make me think of an Enron spokesman with his own pile of stock options. No, no, that’s an unworthy thought, I’m sure the ladies have the best of intentions here. I’ll bet that a close reading of Jagadeesh and Larry will even demonstrate how even-handed Social Security is. Hmmm, let’s see—it’s certainly progressive:

For low earners, the system not only pays back in full each dollar paid in. It also provides about 45 cents on the dollar as a subsidy.

See, that’s the kind of social program that our ladies are out there to support. I’m feeling good about human nature again, at least until I get to the next sentence:

Not all poor individuals receive a subsidy, however. None of the poorest fifth of males in the 11 cohorts can expect to get back more than they pay in; instead they can expect to lose about 27 cents on the dollar. Poor women, on the other hand, can anticipate receiving 1.67 cents per dollar paid in (a subsidy of 67 cents).

Surely this is just some statistical blip, something that happens to poor people—like living in neighborhoods with lots of liquor stores. I mean, it couldn’t work that way for everybody, now, could it? I read on:

…women in higher lifetime earnings quintiles [tax brackets to you and me] mostly collect benefits based on their own earnings records. Their [returns] are, nevertheless, larger than those of men because women collect survivor benefits based on the spouses’ higher earnings records and because they possess greater longevity.

Gosh, you don’t think 6 million American women could really be trying to prop up Social Security just in order to get something out of it personally, do you? I mean this is the big banana of the welfare state, the (as their own website describes it) “the heart of our social insurance program.” But you know, I’m starting to wonder exactly what they mean by the word “our” in their tagline:

Social Security: It's our program, our money, and our families' one guarantee!!



posted by Friedrich at September 4, 2002


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