Lots of Gain and No Pain! Americans Prefer to Be Deceived Rather Than Face the Hard Choices of Doing Something about Budget Deficits and Funding Social Security
Samuelson, Robert, Newsweek
Byline: Robert Samuelson
You've never heard of Flemming v. Nestor, but it's a 1960 Supreme Court decision that demolishes the Bush administration's case for borrowing vast amounts to pay for its proposed "personal" Social Security accounts. The White House has crafted a clever bit of intellectual camouflage to do what's politically convenient: create a new government benefit--the personal accounts--at no obvious cost. True, borrowing is a cost, but it's largely hidden from the public. It's not as conspicuous as a tax. What we have here is an exercise in mass deception that, in a weird way, is encouraged by a public that prefers to be deceived rather than face the difficult choices posed by Social Security or the government's budget.
If personal accounts are worth having (my view--they're not), then they're worth paying for through taxes or cuts in other government spending. Perish the thought. The administration created a massive Medicare drug benefit (estimated 2006-2015 cost: $795 billion) without new taxes, and why shouldn't it do the same for personal accounts? The White House estimates the needed borrowing at $754 billion in the next decade. Democrats on the House budget committee put the first full decade of borrowing (which would start in 2009) at $1.4 trillion. Regardless of amount, the administration's justification is the same: the borrowing simply replaces one debt (future Social Security payments) with another (borrowing now for personal accounts). As Joshua Bolten, head of the Office of Management and Budget, testified last week: "The transition financing [of personal accounts] does not represent new debt. These are obligations that the government already owes in the form of future [Social Security] benefits." Sounds reasonable. It isn't.
A bond is a legal debt; Social Security is not. When the government sells a bond--that is, borrows--it assumes a legal obligation to pay the lender interest and to repay the principal. If the government defaulted, creditors would go to court to demand repayment. Social Security does not involve this kind of debt; Congress can raise or lower benefits at any time. This is both common sense and the law--Flemming v. Nestor. Ephram Nestor had immigrated to the United States from Bulgaria in 1913. In 1956 he was deported because he'd been a Communist Party member for six years (1933-1939) and was also stripped of his Social Security benefits--both acts following congressional law passed in the prevailing anti-communist climate. Nestor had paid payroll taxes for 19 years; he sued to get his Social Security. The court rejected his claim. …