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OP ED
Don't take people at their word. Don't listen to them when they tell you how to be virtuous.
They're faking it. They don't care about virtue, or you or the common good. They're just taking opportunistic potshots under the guise of sermonizing. They're just a bunch of hypocrites.
This little bit of moral philosophy is drawn from the political events of the past few years.
Over this time, Democrats have been hectoring President Bush in the manner of an overripe Fourth of July orator. The president should be summoning us to make shared sacrifices for the common good. The president should care for the poor, and stop favoring the rich. He should make the hard choices and impose a little fiscal discipline on government.
Sometimes you had to walk through Democratic precincts in a gas mask, the lofty rhetoric was so thick. But now we have definitive proof that they didn't mean it. It was all hokum.
Over the past few weeks, the president has called their bluff. By embracing the progressive indexing of Social Security benefits, the president has asked us to make a shared sacrifice for the common good. He's asking middle- and upper-class folks to accept benefit cuts so there will be money for the people who are really facing poverty.
He has asked us to redistribute money down the income scale. Why should programs for children and families be strangled so Donald Trump can get bigger benefit checks?
He has made the hard choices. By facing up to the fact that there are going to be benefit cuts, he's offended Newt Gingrich, Jack Kemp, the supply siders and other important Republican constituencies.
So how has the St. Francis of Assisi wing of the Democratic Party responded to Bush's challenge? Does it applaud him for doing what it has spent the past years telling him he should do? Of course not.
The Democratic leadership has dropped all that shared sacrifice talk and started making demagogic appeals to people's narrow self-interest. Nancy Pelosi cries out that Bush's progressive indexing idea means "cutting the benefits of middle-class seniors." Representative Sander Levin protests it "would result in the biggest benefit cut in the history of Social Security."
What about the sober chin-pullers - the fiscally prudent worriers and deficit-fearing editorialists? Have they come out and applauded Bush for his courage? Are they mobilizing to take advantage of this moment? No, their silence is deafening.
And what about those moderate Democrats? For two decades they've been courageously saying we need to means-test Social Security, so we can focus our resources on those who need it. Now Bush has embraced their view. Are they saying that since Bush has moved so far in a redistributionist direction that perhaps the Democrats should budge slightly, too? Of course not. They're inventing lame reasons to explain why they shouldn't be for the policy they have been for over the past 20 years. Bush could tell them he loved their mothers and they'd invent reasons to be against him. Politics trumps policy.
George Bush has been willing to address a long-term, politically thorny problem. He's pursued it doggedly while most members of his party wish he would just drop it. But his Democratic counterparts are behaving like alienated junior professors. No productive ideas. No sense of leadership. Just half-truths from the peanut gallery.
This is the difference between the party with a governing mentality and the party with the opposition mentality. The governing party leads. It takes the arrows. It casts about for productive ideas and slowly absorbs the other party's good ones. Bush has now absorbed progressive indexing of retirement benefits.
The opposition party opposes. It doesn't feel any responsibility to come up with positive alternatives. Its main psychological need is to be against its nemesis at all costs. If the governing party steals one of its ideas, it will oppose that idea.
In this way the opposition party is pushed further and further to the edge. It loses control of its identity - it's simply a negative reactive force to whatever the governing party happens to be doing at the moment. It finds itself in a cycle of opposition, negativity and irrelevance.
This is what's infected the Tories in Britain, and it's infected the Democrats here. When a Republican president embraces progressive indexing, something big is happening. When the Democrats oppose it, you know their party has betrayed an animating ideal.
Martin Mayer of Brookings Institution in New York Times, April 22, 2005:
“So few specifics of President Bush's Social Security proposal have been made public that it is difficult to say which will make trouble. ...”
GALVESTON, Tex., March 13 - As governor of Texas, George W. Bush had an up-close look at what many advocates of individual Social Security investment accounts consider a laboratory for how such a system might work: Galveston County's retirement system.
In 1981 officials in Galveston, a seafront city on the Gulf of Mexico opted out of Social Security along with neighboring Brazoria and Matagorda Counties and chose instead to plunge their county governments into the unknown territory of offering private retirement accounts.
Hundreds of employees in these counties have since retired under the system and more than 4,000 current employees make deposits into their private accounts each month.
But there is intense debate over what lessons to draw from Galveston's experience and whether a government retirement system should help adjust income disparities.
Some prominent retired officials swear by the system, saying it has allowed them to retire richer than if they had stayed with Social Security.
"You basically get back what you put in," said Ray Holbrook, 78, a former county judge who retired in 1995. Mr. Holbrook had been an early supporter of the plan.
Others, mainly retirees with lower income, have found their small nest eggs eroded by inflation or gone altogether after choosing a lump-sum payment instead of monthly checks.
"I don't know what I would do without Social Security," said Norma Samuels, 61 , a retired food services manager who took the $22,000 she had put in her account over eight years as a lump-sum payment because her husband had died and amassed unpaid medical bills.
Ms. Samuels still receives Social Security through survivor's benefits and is waiting to collect her Social Security benefits from a previous job when she turns 65. The Galveston plan also includes survivor and disability benefits that sometimes exceed those of Social Security.
Still, few of the participants in the plan are explicitly critical of the system, perhaps because many say they feel they have greater control over their investments. Most county employees here also benefit from a separate county pension, which gives them a cushion.
The Houston investment firm that designed the Galveston plan invests employees' money mostly in safe but low-yielding securities, providing participants with quarterly updates on their investments and the opportunity to withdraw their money in a lump sum upon retirement or in installments over several years.
"I have the luxury of completely forgetting about Social Security," said Kirk Greene, 42, an information technology manager who began working full time for Galveston County with a salary of about $14,000 a year in 1986, five years after it adopted the system.
Mr. Greene said he now had about $120,000 in the Galveston plan in addition to some $130,000 in the county's pension plan. Mr. Greene, who earns about $75,000 a year, said he expected to retire in nine years.
"I'll be going fishing when many of my friends will still be working," said Mr. Greene, cherishing his ability to start drawing his money at 51, an option not available under Social Security. "I feel able to benefit from the money that I myself put in."
Under the Galveston plan employees put about 6.1 percent of their salaries into their accounts, roughly the same as the 6.2 percent withdrawn from most workers' paychecks for Social Security. In addition, the three county governments then pay about 7.7 percent of employees' salaries, slightly higher than the 6.2 percent deposited in Social Security by most employers.
The majority of the plan's money is invested in annuities, financial securities sold by insurance companies that provide fairly predictable rates of return. The exception is in Brazoria County. Some employees there are smarting after losses in their accounts because of an investment option, created around the time of the stock market's peak in 2000, allowing them to put some of their money in stocks with higher risks. Most of those losses have been recuperated [sic] in the last few years.
The insurance company, rather than the plan's participants, pays a management fee of less than 1 percent of the plan's assets. First Financial Benefits of Houston, the creator and administrator of Galveston's plan, estimates that the plan has earned an average of 6.5 percent in annual returns since its inception, though that figure was influenced by the relatively high interest rates of the 1980's. The plan currently returns about 4 percent a year.
Richard F. Gornto, the president of First Financial Benefits, helped design the plan and said his estimates showed that all retirees would do better financially under the county's plan than they would have under Social Security. But others who have studied the plan and used different assumptions disagree.
Critics contend that employees with higher incomes do much better than those with lower incomes and that over time the fact that the returns are not indexed for inflation make them a worse deal than Social Security.
A study in 1999 by the Social Security Administration, for instance, found that after 20 years of retirement, all of the plan's benefits, even for wealthier retirees, would be lower relative to Social Security.
Eric R. Kingson, a professor of social work at Syracuse University who has studied the Galveston plan, also says it is a threat to the "quiet redistribution" of wealth under Social Security that provides poorer retirees with a higher share of their pre-retirement wages than it does to their richer counterparts.
For instance, the study by the Social Security Administration found that married low-income workers retiring in 2045 under the Galveston plan would receive initial benefits equivalent to about 60 percent of Social Security while a single high-income worker would receive payments equivalent to about 140 percent of Social Security.
In 1983 Congress ended the option of allowing counties to drop out of Social Security but exempted those who had already left it.
Another study of the Galveston plan, by the Government Accountability Office in 1999, projected that a low-income worker retiring in 2026 after 45 years would receive $1,028 a month under the Galveston plan compared with $1,366 under Social Security.
The G.A.O. also found that those with larger incomes did better. A worker with a median income would receive $1,367 a month under Social Security as opposed to $2,024 under the private plan. An employee in a higher income range would receive $1,898 in Social Security compared with $4,089 a month under the Galveston Plan. (The G.A.O. defined a low-income salary as $17,124, median income as $25,596 and high income as $51,263.)
Mr. Gornto, of First Financial Benefits, said that if a plan like Galveston's were tried on a national scale, it could always be altered to deal with any problems. He noted that the plan had already made changes to features deemed unwise, recently eliminating the option of hardship withdrawal.
"Some people like to see us here in Texas as unsophisticated, with chewing tobacco in our mouths," Mr. Gornto said in an interview.
"The opposite is true. We can do our own quiet redistribution within the plan if that's needed," he said, explaining that a formula could be used to shift some of the plan's resources to poorer retirees.
For all the debate, participants in the plan tend to have few complaints about returns as long as they know that their accounts are gaining in value.
"It's known that we've got one of the best retirements in the law profession in Texas," said Robert Dodd, 36, a sheriff's deputy who recently moved to Galveston.
A 22-year-old colleague, Dustin Helms, on a cigarette break with him, took that thought a bit further.
Social Security's a joke, and everybody knows it," Mr. Helms said. "By the time I retire it's not going to be around. I might as well stick around here."
WASHINGTON, March 24 - As President Bush and his allies travel the country to promote his Social Security plan, they say individual investment accounts are a no-brainer, bound to result in more money at retirement than workers could expect from Social Security.
But someone at the Social Security Administration did not get the word.
In a Q. and A. on the agency's Web site meant to explain the retirement program, there is this exchange, which has apparently been there for years:
"Question: I think I could do better if you let me invest the Social Security I pay into an individual retirement plan (I.R.A.) or some other investment plan. What do you think?"
"Answer: Maybe you could, but then again, maybe your investments wouldn't work out. Remember these facts:
- Your Social Security taxes pay for potential disability and survivors benefits as well as for retirement benefits.
- Social Security incorporates social goals - such as giving more protection to families and to low-income workers - that are not part of private pension plans; and
- Social Security benefits are adjusted yearly for increases in the cost of living - a feature not present in many private plans."
In the middle of the page at www.ssa.gov., toward the top, are "Questions about." From the drop-down menu, viewers can choose "Taxes and Social Security" and go to Question 18. [I used Question 16 to get this - L G Harper]
After he was shown the passage on Thursday, a White House spokesman, Trent Duffy, said: "The president is not talking about this approach. The president's approach is a voluntary account financed by a portion of a person's payroll taxes, and that account would have appropriate safeguards to guard against risks in the market."
Does he expect the Web site to be changed? "That's up to the Social Security Administration," Mr. Duffy said.
In the agency's press office, Mark Hinkle, said, "By and large, we have an informational Web site, not a political Web site."
WASHINGTON, March 7 - The Social Security trust fund "had plenty of money in it," Anne Cash, a 70-year-old retired federal worker, declared furiously at a town meeting in North Philadelphia last month.
"It should not be tampered with," Ms. Cash told her congresswoman, Allyson Y. Schwartz, a freshman Democrat. "It was not intended for the government to borrow."
President Bush, Ms. Cash continued, "owes that money back."
Senators and representatives across the country have heard similar assertions, based on a misunderstanding of how the system works, from constituents who oppose the president's plan to change the basic structure of Social Security.
"The Social Security trust fund has produced more bad public discussion than any other budget entity," said Douglas Holtz-Eakin, director of the Congressional Budget Office.
The confusion is frustrating to Republicans who side with Mr. Bush.
"If the president can convince people how the trust fund works, we're over a hurdle," said Senator Charles E. Grassley of Iowa, the chairman of the Finance Committee. "The trust fund is a mirage, but I still have Iowans say to me, 'Where's the money?' "
But unlike a mirage, the trust fund does exist. The details are on Page 1,112 of the appendix in the president's budget for the 2006 fiscal year. What Mr. Grassley meant was that the significance of the trust fund is limited.
Its importance, said John C. Rother, the policy director of AARP, the advocacy group for older Americans, is largely symbolic. "It is a symbol of the insurance nature of the program and the social contract that lies behind it," Mr. Rother said.
"But it doesn't really bind the Congress," he said, and "no individual's benefits are insured by it."
The White House has contributed to the misunderstanding by saying in one breath that soon no money will be available to pay Social Security benefits and in the next that issuing bonds to pay for private investment accounts would not create new government debt because it would merely replace one obligation (to use the trust fund to pay Social Security benefits) with another obligation (to new bondholders).
The truth, Mr. Holtz-Eakin said, is somewhere in between. The trust fund is more than an empty promise, he said, and less than a solemn obligation backed by the full faith and credit of the United States.
A main reason for the confusion is that from the creation of Social Security, politicians have used the trust fund to mask several realities.
Social Security is not an insurance policy in which workers pay premiums to cover their own benefits. Instead, each generation of workers pays taxes to finance the retirement checks of the previous generation, and there is nothing to prevent Congress from changing the size of benefits, as it has many times over the years.
All tax receipts go into the same pot in the Treasury and are spent at the discretion of Congress; for years, excess Social Security taxes have been used to pay for other programs.
The government has made promises to retirees it cannot keep without raising taxes, imposing deep cuts in other programs or borrowing loads of money; but raising taxes, cutting spending or borrowing to meet Social Security promises is no different from doing so to pay for troops or prescription drugs under Medicare or any other government expense.
Here is how the trust fund works:
When the Treasury receives the Social Security taxes paid by workers and their employers, most of the money is placed in the Federal Old-Age and Survivors Insurance Trust Fund. (Some also goes into the Federal Disability Insurance Trust Fund.)
Retirement benefits are paid monthly from the trust fund. Any tax money left over is lent to the federal government. The government issues interest-bearing Treasury bonds to the trust fund and immediately spends the money for other purposes.
When tax receipts are not sufficient to pay benefits, the Treasury is supposed to redeem bonds in the trust fund and use the proceeds to meet the monthly payments.
The trust fund system was created not for budgetary reasons but to solve a political problem faced by Franklin D. Roosevelt.
When the original Social Security law was enacted in 1935, it specified that tax withholding would begin in 1937 but that the first benefits would not be paid until 1942 so the system could build up a reserve.
Opponents of the law immediately attacked this as government fraud, a device for a greedy Democratic Congress to get its hands on workers' paychecks.
Alfred M. Landon, Roosevelt's Republican opponent in the 1936 presidential election, called the new program "a cruel hoax," no different from a parent who took money from his children to invest for retirement but instead spent the money and left the children with i.o.u.'s.
To make sure the reserve was not squandered, Arthur J. Altmeyer, chairman of the Social Security Board, devised a system, enacted in 1939, in which the reserves were invested in government bonds, theoretically insulating them from the whims of Congress. The tax money, Roosevelt declared, would be "held in a government trust fund solely for the social security of workers."
For years, this system was given little thought. Almost all the taxes collected were paid out in benefits, and not much was left over in the trust fund. But in 1983, with the system about to become insolvent, a commission led by Alan Greenspan proposed a series of benefits cuts and tax increases embraced by President Ronald Reagan and Congress.
These steps generated considerably more money than was needed to pay benefits, and the trust funds began to swell, first by tens and then hundreds of billions of dollars a year. This allowed Mr. Reagan and the first President Bush to present annual budgets showing much lower deficits.
The surpluses in President Bill Clinton's tenure were due in large part to the Social Security excess. Once again, under President George W. Bush, budgets are in the red. The deficit this year is projected to be $427 billion.
Under the current structure, payroll taxes will begin falling short of what will be needed to pay benefits in 2018, according to the latest estimates by the Social Security Administration.
By 2042, in this analysis, the trust fund will be exhausted, and the only money left to pay Social Security benefits will be what is paid each year in Social Security taxes, enough to pay only about 75 percent of scheduled benefits. If Mr. Bush's proposal to allow workers to divert part of their payroll taxes into private accounts is enacted, the trust fund will be depleted even faster.
Once benefits exceed annual tax revenues, the government will have to increase taxes, cut spending elsewhere or issue more bonds if it decides to pay full Social Security benefits.
But trust fund or no trust fund, bonds or no bonds, Social Security is only one program with a claim on the federal budget.
There will be highways to build and, perhaps, wars to fight. There will be expenses for education and health care and many other government activities. And there will be citizens - voters - who do not want their taxes to be raised.
Maybe because of the trust fund, the politicians will decide that Social Security has the strongest claim.
But if so, that will be a political decision, not a legal one.
Robin Toner contributed reporting for this article.
Copyright 2005 The New York Times Company
The headline of Tuesday's New York Times story
The unrebutted claims in the article include: "the trust fund is…less than a solemn obligation backed by the full faith and credit of the United States;" "it doesn't really bind the Congress," "cutting spending or borrowing to meet Social Security promises is no different from doing so to pay for troops or prescription drugs under Medicare or any other government expense," "once benefits exceed annual tax revenues, the government will have to increase taxes, cut spending elsewhere or issue more bonds if it decides to pay full Social Security benefits," and "trust fund or no trust fund, bonds or no bonds, Social Security is only one program with a claim on the federal budget."
All of those assertions convey the strong impression that Social Security's trust funds don't really matter. But they matter a great deal. Because they are held exclusively in U.S. Treasury securities, backed by the full faith and credit of the federal government, future Congresses will be bound to pay the interest and principal on those securities before authorizing payments "on any other government expense." U.S. Treasury obligations are viewed worldwide to be the safest possible investment - the federal government throughout its long history, including deep recessions and times of war, has always paid interest and principal on its debt. Presumably, members of Congress could not ignore the enormous political and economic implications of a bond default to the trust fund. Indeed, it would take an economic calamity of unthinkable magnitude for the federal government to default on any of its obligations, in which case Social Security's future would be among the least of our worries. In that scenario, the value of investments in private accounts would plummet as well.
Any future expectation of redeeming a security depends on the capacity of the lender and force of law. The market tells us that the best bet to fulfill those conditions is the United States government, whose securities have the lowest "risk premium." In other words, the likelihood of payment is simply better than anything else. After all, what alternatives are there? Putting the money in a mattress? Would it be safer in corporate stocks or bonds? A bank would just lend it out, the way the government does, but to less reliable credit risks.
It's true that the government borrows and uses the proceeds for other expenses. Under the Clinton administration, the Social Security surpluses put the government in the black and enabled it to pay down debt. Today, with the overall budget in much worse shape, Social Security's surplus reduces the size of the federal budget deficit, which in turn helps to keep interest rates lower than they would otherwise be. Even after 2018, when Social Security's trustees forecast that payroll taxes will no longer exceed payments owed to beneficiaries, the trust fund's interest will be more than enough to cover the gap. Under the trustees' conservative projections, the trust fund will continue growing for another 10 years, from $5.3 trillion in 2018 to $6.6 trillion by 2028.
It was President Ronald Reagan who signed into law in 1983 the reforms endorsed by the Greenspan Commission that created the large and growing trust funds. The explicit promise made to the American public was that workers would now owe higher payroll taxes to finance the trust funds so that they could be confident that their Social Security benefits would be available to them upon their retirement. As Reagan said at the signing ceremony, "This Bill demonstrates for all time our nation's ironclad commitment to Social Security.…It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire."
Simply put, Congress is bound to pay the interest and principal on Social Security's trust fund, which means that the system will be able to continue paying promised benefits in full until sometime between 2042 and 2052, depending on the forecast. There should simply be no misunderstanding about that.
Richard C. Leone is president and Greg Anrig, Jr., is vice president of programs at The Century Foundation.