Bush Puts Social Security Cart Ahead of Budget Horse

The Bush White House put on a dog and pony show at an economic “conference,” which wasn’t so much an exchange of ideas as a long lecture. At this confab, the administration spelled out its economic priorities, which seem to begin with partial privatization of Social Security and end with wishful thinking. While it is true that Social Security, as currently structured, needs some work, the bloated budget deficit is the real economic issue.

The proposal on the table for changing the way America deals with retirement is ideologically, rather than economically, sound. Younger workers will be allowed to take some of their payroll taxes that would have gone into the Social Security “trust fund” (an accounting fiction) and speculate in the private sector. The argument is that it’s their money, and they should be allowed to do with it what they want. Because they can get higher yields from the stock and corporate bond markets, the argument says they will retire richer.

While it is true that there are higher returns to be made in stocks and bonds, there is also higher risk. There is a truism that says “the greater the risk the greater the reward” -- and the great the chance of losing one’s shirt. It would be easier to increase payroll taxes; taking an additional 2 cents on the dollar would, according to the wonks at the FT, fix things for 75 years. And if the cap on income taxes were dropped (currently, every dollar about $86,000 or so that one earns goes untouched by payroll taxes), most Americans wouldn’t notice much difference in their weekly pay. However, letting Americans decide where their nest egg sits in and of itself isn’t unpalatable. What is hard to swallow is the transitional costs and the way the White House seeks to fund it.

Because the money that currently goes into the “trust fund” will go elsewhere, there is a monetary gap that must be filled. The Bush White House casually throws around a figure of $1 trillion ($1,000,000,000,000) over ten years, and the actual cost is certain to be higher (just like the prescription drug benefit, the estimate is likely being held down for political reasons). To pay for this, Mr. Bush will not raise taxes nor will he cut benefits; he’s going to issue bonds, thereby driving up America’s debt.

Had he done this in his first term, when the Clinton era budget surpluses extended as far as the eye could see, the world might have grumbled, but he could have done it. Now, thanks to his ill-advised tax cuts in 2003 and 2004 (this journal supported the 2001 and 2002 tax cuts to cope with the Al-Qaeda attacks), he’s got debt levels that are sinking the dollar and worrying investors.

Quite simply, he’s mortgaged the house thrice over, and now, he wants to get a new credit card to max out. No bank in the world would take that suggestion seriously. But it would be a double coup if he could fix the budget situation and then get Social Security sorted out. It isn’t too late, but Mr. Bush is notoriously inflexible.

© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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