April 12, 2005
By now we are well accustomed to the scare tactics and distorted logic being employed to try to thwart President Bush's proposed reform of Social Security. As a prime example, an editorial in last Wednesday's New York Times denounced President Bush for saying while in West Virginia (see speech text HERE) that the Social Security "trust fund" is nothing more than IOUs. They say, "Mr. Bush wants Americans to believe that the trust fund is a joke. But if the trust fund is a joke, so is the full faith and credit of the United States." That totally misconstrues the point that Mr. Bush was making, which is simply that what you put into Social Security system has almost nothing to do with what you get back from it. U.S. Treasury obligations per se are most certainly not a joke, but one must keep in mind that "investing" in them does not promote the creation of real wealth, as with corporate stocks and bonds, but merely facilitates the transfer of financial burden from one generation to the next, in a never-ending game of passing the buck. Phil Faranda put it very succinctly: "Mr. Okrent: debits are on the left, credits are on the right."
Precisely because Social Security is not a real "trust fund" but operates just like any other government "entitlement," with automatic benefit payments, it needs periodic fixups and occasional major reforms. In some years there is a surplus that every elected leader wants to spend as quickly as possible, and in other years there is a deficit, and everyone points fingers at each other. That is no way to provide for retirement or family emergencies. E. J. Dionne unwittingly proves that point in today's Washington Post . His first sentence offers hope that some bipartisan compromise may be possible, and the next sentence shows, once again, that Democrats see Social Security not as a self-sustaining financial cushion in which all Americans share an interest, but as a redistributionist piñata:
You can reject outlandish claims that Social Security faces some sort of "crisis" and still acknowledge that it faces a gap in funding for the long haul. The estate tax should be part of the solution.
Frankly, I would agree with Dionne that the Republican plan to permanently eliminate the estate tax (what he calls "The Paris Hilton Tax Cut") was going to far, but the fact that he regards a 45 percent rate as reasonable shows that it's just an easy cash cow for him. Like any narcotic that is harmless in small doses, ever-growing reliance on the estate tax has had terrible consequences in the past, such as forcing many family farms out of business. Say what you will about the equity of the federal estate tax, it should have nothing to do with shoring up the long-term deficit in Social Security.
But isn't Bush getting killed politically by touching "the third rail"? A poll in the Wall Street Journal would seem to indicate deep divisions within the Republican party over the Social Security issue, but Bush seems limber enough and determined enough to score at least a partial victory. Indeed, almost everyone tacitly acknowledges that the current system cannot be sustained in the long run, so it's mostly just a matter of putting up with populist heckling and navigating the procedural rapids on Capitol Hill. I'm encouraged by the frank talk of bold alternatives by such Republicans as Lindsey Graham, and President Bush to his credit welcomes open debate. Nevertheless, Bush shares some of the blame for failing to articulate his intentions and ultimate purposes more clearly, as lampooned in Sunday's Doonesbury strip. It was a mistake to say there is a "crisis" in Social Security. I'm more convinced all the time that the term privatization is scaring people off, and that the emphasis should be on eliminating the automatic escalation of Social Security benefits, while providing more incentives for people to save (via tax exemptions), rather than diverting funds from Social Security payroll taxes.
For the curious and/or confused, here is a do-it-yourself alternative Social Security benefits calculator, from Patrick Ruffini: