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(COMTEX) B: Experts help filter out facts about Social Security

Dec 27, 2004 (Milwaukee Journal Sentinel - Knight Ridder/Tribune Business News via COMTEX) -- Rhetoric is swirling around Social Security like wind-whipped snowflakes.

But just as those flakes can blind those caught up in a storm, the heated discussion of Social Security's future can obscure the essential facts of the situation.

At base, those facts are just a few:

-- As now constituted, the Social Security system will bring in less money than it needs to pay out in benefits beginning in 2018, according to the trustees of the system, or in 2019, according to the Congressional Budget Office.

-- When that happens, to keep paying promised benefits, the system will have to cash in the government bonds it has been collecting since the mid 1980s. That could be done by the government redeeming them through other tax revenue or by borrowing from the general public.

-- These bonds have accumulated as the result of a deliberate plan, by Federal Reserve Chairman Alan Greenspan among others, to raise Social Security taxes to build up such a surplus. [F6 comment -- at least as far as dubya and his crew are concerned, no friggin' way those government bonds accumulated by Social Security will ever be paid off to Social Security by the federal government]

-- Sometime near the middle of the 21st century -- the trustees estimate 2043; the Congressional Budget Office, 2052 -- the bonds will run out.

-- At that time, Social Security will be able to pay benefits only to the extent it collects taxes to do so. That will probably be between 70 percent and 80 percent of the benefits now promised.

President Bush calls the situation a crisis, saying there is a need for a fundamental overhaul of the system to fix it.

Others disagree, saying that higher taxes, lower benefits or a combination of the two can fix the problem.

Some accuse Bush of using a minor problem to create a major discussion in order to further political goals.

"It depends on how you define 'crisis,'" said Avram Sacks, Social Security analyst for CCH Inc., a business information firm in Riverwoods, Ill. "The facts are the facts and people can interpret the facts however they want."

To Bush, the interpretation is clear: Social Security must be drastically overhauled.

"The current system can't sustain that which has been promised to the workers. That's what's important for people to understand," the president said at a news conference last week.

He used the occasion to outline in broad strokes his ideas for addressing the situation.

They include no tax increases, no benefit cuts for people over 55 and allowing younger people to put some of their Social Security taxes into private accounts they would own and invest under broad guidelines.

Those accounts are the linchpin of his thinking.

Presumably, they would grow enough to take pressure off the existing system to provide the benefits now promised. [F6 comment -- benefits that, at least as far as dubya and his crew are concerned, will NOT be paid, at the very least not in full]

However, funding the private accounts also would mean less money going into Social Security today. That would require the government to find dollars to make up the shortfall or push forward the date at which the system takes in less than it needs to pay promised benefits.

Exactly how much this shortfall would be depends upon the plan adopted, and Bush made it clear at the news conference that he is not yet ready to show his hand in that detail.

One advocate of private accounts who has spelled out details is U.S. Rep. Paul Ryan, a Republican from Janesville.

He has sponsored a bill that would establish private accounts and tie their funding to a cap on other federal spending.

Ryan assumes that the investment generated by the private accounts means "we are going to get a big surge in corporate tax receipts that let us help fund the transition." [F6 comment -- what absolutely nonsensical horseshit -- that's beyond ridiculous]

He sees a need for borrowing about $1 trillion to fund the transition.

Assuming higher corporate profits from private accounts is questionable, said Menzie D. Chinn, professor of economics at the University of Wisconsin-Madison and a former senior economist on the President's Council of Economic Advisers at the end of the Clinton and beginning of the Bush administrations.

It is basic economics that if the supply of something, investment capital, for example, goes up, then its price, that is the return it should bring, will go down.

"Once you have a bunch of people jumping into the stock market, it is not clear the returns are going to remain unchanged," he said.

"I don't think there is a pressing crisis in Social Security right now," said John Karl Scholz, another UW-Madison economics professor who has studied the system for a long time. "The long-term financing can use some shoring up."

Among the fixes suggested by those who are skeptical of private accounts are mixtures of lowering benefits and raising taxes.

Slowly increasing the retirement age and raising the cap on earnings subject to the Social Security tax are often mentioned.

According to a recent report from CCH, if the Social Security tax were collected on wages up to $200,000 instead of the 2005 limit of $90,000, enough money would be raised to deal with the situation.

"The idea of abolishing the system or making drastic changes to the system under the pretense that there is a crisis now is not very honest," Scholz said. "It is easier for the advocates of privatization to achieve their political objectives if they create a sense of urgency."

Scholz's definition of honesty might offend the president, but Bush agrees with the need to "create a sense of urgency."

"The first step in this process is for members of Congress to realize we have a problem," Bush said in his news conference. "Many times, legislative bodies will not react unless the crisis is apparent."

Bush also agreed that private accounts have a broader agenda than just addressing the Social Security problems.

He said it is good public policy if Social Security is turned into a defined contribution plan, like a 401(k), rather than remain a defined benefit plan, like a traditional pension.

Such a change in Social Security would be fundamental and not warranted by current conditions, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., and an opponent of private accounts.

"If you adhere to the traditional purpose of Social Security to ensure that people who spent their life working will have a decent income to keep them out of poverty, then the defined benefit would be what you are looking for," he said.

By Avrum D. Lank

To see more of the Milwaukee Journal Sentinel, or to subscribe to the newspaper, go to http://www.jsonline.com .

(c) 2004, Milwaukee Journal Sentinel. Distributed by Knight Ridder/Tribune Business News.

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