Social Security: Deflating the Scare Stories

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Social Security Deflating the Scare Stories

• Dean Baker
• Co-Director, Center for Economic and Policy
  Research

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Deflating the Scare Stories

• The Social Security program will be fully solvent
  long into the future.
• The projected short-fall over the long-term is
  relatively modest.
• Social Security taxes pose no threat to the
  living standards of future generations.
• Privatization does not offer a solution.
• Lobbyists, politicians, and pundits have tried to
  deceive the public about the health of Social
  Security.

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• All scheduled benefits can be paid through 2043,
  with no changes whatsoever.
• Even if no changes are ever made, Social Security
  will always pay a higher benefit than what
  current retirees receive.
• If future GDP growth is closer to historic
  levels, then the shortfall will be even less than
  the Trustees project.

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The tax revenue needed to pay full Social
Security benefit for the next seventy five years
is less than three quarters the size of the
increase in annual defense spending over the last
four years.
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• The size of the tax increase that would be needed
  to keep Social Security fully solvent over the
  next seventy-five years is less than (or
  comparable to) the tax increase put in place in
  each of the decades from the fifties to the
  eighties.
• There was more basis for warning about a Social
  Security crisis at any point from 1937 to 1980
  than there is today.

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Our children and grandchildren will enjoy vastly
higher living standards than we do today. This
will not be affected by the possibility that they
will have to pay higher Social Security taxes
than we do.
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• The administrative cost of a centralized Social
  Security system is nearly ten times the cost of a
  U.S. system.
• The administrative costs of a decentralized
  system are more than twenty five times the cost
  of the U.S. system.

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The Administrative Costs of Social Security vs. a
Privatized System

• In some privatized systems, 25 to 30 percent of
  contributions go to financial intermediaries.
• In some privatized systems (e.g., Bolivia) the
  administrative costs of the government oversight
  commission exceed the cost of running the entire
  program in the U.S.

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• Stock returns do not come from heaven-- they
  equal capital gains plus dividends.
• Given high PE ratios in recent years and slow
  projected growth, it is impossible for stocks to
  provide their historic rates of return.
• Proponents of privatization have consistently
  refused to take the hour or so needed to make
  return projections.

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Tricks of the Scare Mongers

• Expressing the shortfall in trillions of dollars
• No one knows the meaning of trillions of dollars
  over the next seventy-five years. An honest
  assessment expresses the shortfall as a percent
  of GDP.
• The future ratios of retirees to workers
• We already know this-- the baby boomer generation
  was discovered four decades ago. This is
  included in the Social Security trustees
  calculations.

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Tricks of the Scare Mongers

• The trust fund only has worthless IOUs
• The trust fund holds U.S. bonds no one has
  proposed defaulting on the governments debt.
• Medicare and Social Security
• If we dont fix our health care system, then the
  nation will face an economic crisis even if we
  shut down Medicare tomorrow.
• Privatization will allow workers to get higher
  returns
• Privatization cannot create manna from heaven--
  it only redistributes income.

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Conclusion

• Social Security is fundamentally sound.
• It is effective in doing its mission-- providing
  a core retirement income.
• It deserves to be protected.
• Policy should focus on real problems like health
  care and global warming.