Columns » Ernest Dumas

The manufactured crisis

by and

When does a mere problem become a government crisis? When a politician needs a little sleight of hand to achieve something he’s not sure people will like. Social Security has had its share of manufactured crises and one or two that were even real. Washington was within six months of having to reduce pension checks in 1983. Someone yelled “crisis” and Congress and the president acted with amazing alacrity, enacting sweeping Social Security changes that raised taxes and trimmed benefits. President Reagan, who had promised not to raise taxes, violated his pledge happily because the changes would produce surplus Social Security revenues, which in turn would mask part of the humongous budget deficits that his 1981 tax cuts had produced. George W. Bush has a similar problem: scary budget deficits for as far as the eye can see, owing to five rounds of tax cuts and two wars. The deficits will have to be refigured sharply upward if he gets his way and Congress makes the 2001 tax cuts for the rich permanent. Bush would relieve the deficits somewhat by sharply cutting benefits. He provides cover for the benefit cuts by lumping them with private stock accounts, which he says will be a bonanza for future retirees. His calculation depends on the markets acting like they did under Bill Clinton, when stock values rose 10 to 15 percent a year. If Bush is the wave of the future, all bets are off. The Dow Jones has lost 8.5 percent since he’s been president. But if there’s no sense of crisis, none of it, especially the benefit reductions, can be done. So last week, the White House put out fresh talking points that validated the crisis by invoking Bill Clinton and the late Sen. Pat Moynihan. Clinton had used the word “crisis” to describe the long-term Social Security deficits in 1998 and both Clinton and Moynihan had talked about investing in stocks for Social Security. For a local reprise of the propaganda, see the Arkansas Democrat-Gazette editorial of Monday (“What Bill said”). You will not be surprised to learn that, as the Washington Post pointed out Monday, they were engaged in a little deception. They omitted the critical parts of Clinton’s remarks and credited Moynihan with views he never held. Neither Clinton nor Moynihan were fans of Bush’s idea of shifting payroll taxes into the stock market. Clinton favored stock investments but not with payroll taxes. He wanted to augment payroll taxes with $2.8 trillion of surplus general revenues over 15 years, including $600 billion that would be invested in stocks. Clinton used the phrase “Social Security crisis” with the same craftiness as Bush. He was trying to prevent the Republican Congress from using the growing general fund surplus as a pretext to cut taxes for the rich and corporations. “Save Social Security first” by using the surplus to augment the Social Security trust fund, he said, and that became the Democrats’ rallying cry. It worked. But is Social Security in crisis now? You judge. The facts are not in serious dispute. • In 2018 Social Security will begin paying out more in pensions than it receives in payroll taxes and it will begin to spend some of the $5.3 trillion in Social Security assets to pay benefits. But owing to interest earnings the trust assets will continue to grow until they reach $6.6 trillion in 2028. Is there a crisis yet? President Bush paints 2018 as a catastrophic year. If that is right, his plan to divert most individual payroll taxes to private brokerage accounts would not postpone but move the catastrophe up 12 years — that’s next year — which is when Social Security would begin to pay out more than it brought in because of the dramatic loss of payroll-tax income, assuming nearly everyone participated in the stock accounts. • In 2042, all the government bonds will have been redeemed and pensions will be reduced to the amount that current payroll taxes will support. (That’s where a factual dispute comes in. The Congressional Budget Office has recalculated the data and fixes the year at 2052.) • But Social Security will not be “bankrupt” then, as Bush says. It would continue to pay 70 percent of the scheduled benefits, according to the Social Security administration, or 80 percent if you use CBO’s projections. In either case, after adjusting for inflation the pensions would still be perceptibly greater than pensions today. Crisis? Most of us would say no. But even the shock of 2052 need not happen with small adjustments in the cost-of-living index, raising the income ceiling on payroll taxes or imposing a surtax on high incomes. Franklin Roosevelt had insisted on payroll contributions to finance Social Security. “We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions ...,” he said. “With those taxes there, no damn politician can ever scrap my social security program.” He thought he was clever. He never imagined that a president would one day try to do it by running up gargantuan deficits, curtailing benefits and handing the taxes to Wall Street.

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