Michael a hiltzik and michael hiltzik and plot against social security and greenspan commission

One of the problems with SS that everyone knew was going to develop and which Hiltzik began to lay out wonderfully, is the "legacy debt" issue. I say that "he began" to lay it out well because after describing the problem he completely falters on explaining it fully or helpfully. Let me tell you what I know.

The classic case illustrating the "legacy" problem is that of Ida Mae Fuller. She was nearing retirement in the late 1930s. SS began taking 2% from her $75 per month paycheck, as well as from 40 million other Americans, in January 1937. When she retired late in 1939, her contribution totalled $24.75. She then began receiving SS benefits in 1940. Her first benefit check on January 31, 1940 was for $22.75. This would have been fine had Ida and the rest of those similarly situated died right away, but, of course, she didn't. She lived until 1975 and, by the time she died, had collected $22,888.92. Not a bad return on your money. Indeed someone calculated it as an annual 35% return on her money.

This, in a nutshell, is the legacy problem. It is a generational transfer of wealth that may never be repaid. Let's think further of the problem. Those born between 1875 (when Ida was born) and 1935, on average received more from SS than they contributed to the system. I don't understand what Hiltzik means when he says that "these generational transfers peaked for beneficiaries who were born between 1910 and 1916, a group that retired between 1975 and 1981." I suppose that means that the gap between the absolute amount contributed to and received by SS was greatest for those born between those years. In any case, the last retirees to receive more on average than they paid to SS was the cohort born in 1935. Beginning with workers born in 1936, then, they (and we) will pay more into SS than we actually receive.

Clear enough. But then the unclarities emerge. Here are a few of my questions. What was the estimated total amount of this "legacy debt" at various years along the way? How is it calculated today? Will it ever be "paid off?" And, when President Bush throws around figures such as an $11 triliion debt that SS faces, is he just talking about the legacy debt, which is being paid down? Or is his number based on what things would have been had there been no legacy debt? It is here that Hiltzik completely abandons us, leaving us in deep mire on an absolutely crucial issue. Perhaps he understands the issue but doesn't know how to explain it. In any case, you will have to read elsewhere in order to understand what this number is and what it means. One of the assumptions of SS (a so-called "pay as you go" system) is that it is designed to create a bond between generations, a sense of responsibility to the "elders" that we "younger" workers should feel. Though this is a noble aim, Hiltzik argues that it has been lost amid the rhetoric of the Bush administration for reform.

So, Why the Call for Reform?

SS became perilously close to bankruptcy in the early 1980s, but a bi-partisan commission headed by Alan Greenspan in 1983 came up with a plan that should have kept SS solvent until well into the 2040s. Actually it is the plan we are under now and it is working as planned, though the numbers have to be adjusted annually because no fiscal assumptions are ever precisely on target. What the Greenspan Commission did was to take full cognizance of the large cohorts of baby boomers who would retire in the years between 2011 and 2029, encourage an increase in the SS deduction (so that it now stands at 12.4% of salary, half paid by individuals and half by employers), bring more people into the system (domestics, transients, farmers) and build up a huge surplus so that when the baby boomers begin to retire there will be enough money for them. Everyone agrees that this commission did its work effectively and that the surplus, in fact is very big (around $1 trillion now).

The "problem" now, as the Bush Administration would have it, is that the system is broken; it is running out of money; it will collapse in 2041; it is in dire need of a fix. The "fix" he has in mind is to permit workers to take up to 2% (more under other scenarios) of their SS contribution to invest in instruments of their own choosing. This privatization scheme, as Hiltzik skillfully argues, would be a boon primarily to the financial services industry and probably would not yield a net increase in the average worker's SS income. In addition, the "transition costs" to such a system would be in the neighborhood of $1 trillion, though I don't see how these numbers are calculated. The privatization agenda is being pursued in Washington especially by the Cato Institute, a libertarian think tank, and the Heritage Foundation.

It seems to me that the proposal is going nowhere for one simple reason: 2005 is not 1999. What I mean by this is that workers might have been convinced six years ago that they could make more money in the market than the "paltry" yield of T-bills, where the SS receipts are currently parked, but now no one is sure. Financial scandals in supposedly secure corporations, a decline in the stock market and no sense that this trend is going to reverse in the near future all collude to convince people that a predictable return on retirement rather than an uncertain one is to be preferred. Indeed, though the War on Terrorism took SS reform off the front burner for much of his first term, Bush is finding that lots of "little issues," the most recent of which is the near-destruction of New Orleans, will occupy the minds of the American people and his SS reform will go nowhere.

Conclusion--The Problem and Solution

Hiltzik helpfully points out that even if SS is facing a depletion of funds by 2041, it only needs to add approximately 1.9% of "payroll" taxes to insure solvency for another long period. This 1.9%, however, does not have to be gained by upping each half of the payroll taxes .95%. He closes the book by giving several scenarios where little gains can be made here or there. The two most popular are to add state and local workers to SS and the assessment of SS taxes on all of one's income--currently any income above $90,000 per year is exempt from SS taxes; thus a boon to the rich. In any case, he shows convincingly that what the system needs is tinkering rather than revolution, and that the revolution that Bush proposes is simply another attempt to transfer wealth to groups that he has transferred wealth to during his first term: those who already have. In this regard, Hiltzik's book is a helpful contribution to an important current public policy issue.

1258