The numbers the privatizers use just don't add up
Which brings us to the privatizers' Catch-22.They can rescue their happy vision for stock returns by claiming that the Social Security actuaries are vastly underestimating future economic growth. But in that case, we don't need to worry about Social Security's future: if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.
Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.
It really is that stark: any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.
Read that last paragraph again. And ask yourself how stocks can grow by 7% per year, after inflation, while at the same time, the economy only grows at 1.9%, as the projections that the trust fund will be exhausted by 2042 say.
And did I mention that the Bush administration's Social Security plan would entail several trillion dollars in borrowing…
Comments
1998
"two senior ranking Democrats have recently embraced the idea. Senators Daniel Patrick Moynihan (D-NY) and Robert Kerrey (D-NE) have introduced "The Social Security Solvency Act of 1998", which would cut the Social Security payroll tax by 2 percent and allow workers to invest the tax cut in personal savings accounts. "
http://www.pbs.org/newshour...
SOCIAL SECURITY
How should Social Security be reformed?
August 5, 1998
"President Clinton has initiated a national debate regarding the future of Social Security, which many believe will be financially insolvent by 2032. The president challenged Congress in his State of the Union address "to craft historic, bipartisan legislation to achieve a landmark for our generation -- a Social Security system that is strong in the 21st Century." This week, Mr. Clinton brought the debate to the American people in his second town hall meeting on the topic.
Recognizing Social Security’s uncertain future, lawmakers have begun examining ways to stabilize the system. Proposals being discussed include, raising the eligibility age, increasing the Social Security payroll tax or some form of privatization, which would allow workers to invest a portion of their social security payroll tax.
Although privatization has its strongest support amongst Republican Congressmen, two senior ranking Democrats have recently embraced the idea. Senators Daniel Patrick Moynihan (D-NY) and Robert Kerrey (D-NE) have introduced "The Social Security Solvency Act of 1998", which would cut the Social Security payroll tax by 2 percent and allow workers to invest the tax cut in personal savings accounts.
"Get Government Out of Social Security by Richard Salsman, CFA ...
... systemic problems with Social Security, President Clinton has suggested
strengthening ... "Transition Costs" of Partially Privatizing Social Security....
http://www.capmag.com/artic...
"Get Government Out of Social Security
by Richard Salsman, CFA (April 29, 1999)
Summary: The stock market is not a means of rescuing Social Security. Clinton's Proposal to Save the System by Investing in Stocks Entrenches the Very Cause of the System's Insolvency: Government Control of our Savings. President Clinton and Congress should cut taxes so that Americans can save and invest their own income. Then, Social Security should gradually retire."
http://www.concordcoalition...
http://www.pbs.org/newshour...
http://www.pbs.org/newshour...
http://www.epinet.org/conte...
THIS PIECE APPEARED IN THE LOS ANGELES TIMES ON JANUARY 17, 1999.
Clinton's State of the Union
Another High-Wire Act for Clinton
by David Kusnet
"And, in a shrewd attempt to finesse Republican calls for privatizing social insurance programs, Clinton may well repeat his call for using the budget surplus to shore up Social Security and Medicare, while offering working people new investment opportunities through "universal 401k's.""