Social Security and the New Fiscal Policy: Bush Would Put the Costs of Social Security Privatization on the National Tab, Just like His Tax Cuts, Wars, and Medicare Drug Benefit

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THE MOST PROFOUND, AND PROfoundly disturbing, innovation in budget policy during the administration of George W. Bush has been to discard the old-fashioned notion that presidents who propose a tax cut or new spending should also propose some way to pay for it. That practice, apparently, is just soooo 20th century.

Observers of this administration's fiscal policies won't be surprised to learn that the president's preferred way (according to presumably authorized leaks) to pay for the so-called transition costs of partially privatizing Social Security is to not pay for them at all. That, of course, is precisely how President Bush paid for his tax cuts, for the wars in Iraq and Afghanistan, for the Medicare drug benefit, and so on. Never mind the cost. Just put it on the national tab.

Most thoughtful proponents of privatization (and there are some) see it as a way to boost national saving. Here's the argument: An unfunded Social Security system reduces the need for individuals to save for their own retirement because government provides a basic pension. So national savings decline. A funded system, by contrast, would really accumulate assets through saving, just as funded private pension plans do. If the necessary saving is done publicly, that means reducing the overall budget deficit (which economists call government "dissaving") through some combination of tax increases and spending cuts.

But if, instead, the nation moves toward a privatized Social Security system by diverting payroll-tax revenue into private accounts, that raises government dissaving and therefore reduces national saving. Hmm. So how do we raise national saving by reducing it?

And hasn't anyone in the administration noticed that there is a gigantic federal deficit already? Is this really a propitious time to increase it further?

Here is a stunning fact that you haven't heard from the White House: Measured over the same 75-year period that is used for Social Security calculations, the cost of the Bush tax cuts is roughly three times as large as Social Security's financing gap. That means that if the tax cuts were trimmed by just one-third and the resulting revenue assigned to Social Security, the entire Social Security deficit would disappear in a stroke.

Let's remember why we are engaged in a national debate over Social Security in the first place. It's not because the system has failed to achieve its goals, because people are unhappy with it, or even because it's soooo 20th century. The reason is simple: The government has over-promised. …


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