Friday, May 06, 2005

Charles Krauthammer is his usual precise and devastatingly intelligent self in looking at the dishonest campaign that Democrats are running against any change in the Social Security system. As Krauthammer explains, the Democrats refused at first to even acknowledge that there is any problem with Social Security. Then, when polls showed that people realized that there is a problem with Social Security, they started demanding that the President do something about solvency. When he took the bait and proposed a progressive change in how benefits are calculated, Democratic politicians started crowing that he was destroying the program and harming the middle class. This is not true.
Yes, these are cuts, but only in the growth of promised benefits in the future -- based on formulas written in the pre-baby boomer retirement era that so inflate benefits that they are entirely unsustainable. They cannot possibly be paid by the taxes of the fewer workers in the future who will be supporting the many retirees.

To simplify somewhat, the amount of your first check upon retirement is based on your average wages during your lifetime. Then a formula adjusts that number to wage inflation -- which generally amounts to price inflation plus about 1 percent annually. The Bush proposal is to preserve this ever-increasing, ever-compounding benefit formula for poorer Americans, while gradually phasing out the extra 1 percent as you move to wealthy wage earners.

No one gets cut -- either in nominal or real dollars. Everyone gets at least as much or more than any retiree today, with the poor getting progressively more every year.

I don't like the idea that my benefits might not be as large as they could be. But, hey, I'd rather that than huge taxes and no Social Security benefits for my children.

Krauthammer explains why we need to think seriously about fixing the problem now.
And Democrats have a wonderful smoke screen. These "cuts" are not only destructive but unnecessary, they claim, because the insolvency does not kick in until sometime in mid-century -- the Democrats' latest comically precise number is 2052 -- when the "trust fund" runs out. (So much for their month-ago concern about solvency.)

As I have been writing for years with stupefying redundancy -- and obvious lack of success -- this idea is a hoax. There is no trust fund. The past Social Security surpluses were spent the year they were created. The idea that in 2017, when the surpluses disappear, we will be able to go to a box in West Virginia to retrieve the money we need to make up the shortfall (between what Social Security takes in and what it pays out that year) is a deception. There is no money there. It will have to be borrowed or garnered from new taxes.

But things are worse than that. The fiscal problem starts to kick in not in 2017 but in 2009. The Social Security surplus, which Congress happily spends every year, peaks in 2008. Which means that starting in four years (and for every year thereafter) a budgetary squeeze begins, requiring new taxation or new borrowing.

If in 2010 tax revenue and spending remain exactly the same as in 2009, the Treasury will not end up with the same size deficit. It will end up with a larger deficit, because the amount of money it was receiving free and "borrowed" from the Social Security surplus will have shrunk.

That surplus shrinks from its peak in 2008 to zero in 2017 and goes negative after that. That is a very serious fiscal problem that starts not in 50 years, not even in 12 years, but in four.

Time for action, you might think. Ah. But before all those years comes 2006. And a chance for power. A chance for Democratic politicians to once again hear that most mellifluous phrase: "Mr. Chairman."
Just who is playing politics with Social Security? You decide.