Social Security: Deflating the Scare Stories Dean Baker Co-Director, Center for Economic and Policy Research

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 government’s debt. “Medicare and Social Security”: –If we don’t 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.

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.