Lies, damn lies and statistics:

George Bush's campaign to privatize Social Security

“Your audience will be persuaded by the falling ratio of workers per retiree. Cite the ratios of 16 to 1 in 1950, down to 3.3 to 1 today, and falling to 2 to 1 in 25 years. Be sure to reference the source of the data, the Social Security Administration.” — “Saving Social Security” Republican spin manual

Bush got it wrong in a Dec. 21, 2004 press conference broadcast nationwide. Tongue-tied and testy after being asked repeatedly by reporters for details about his proposed Social Security overhaul, Bush couldn’t get his talking points right. He told reporters “In 2040 it will require two workers per employee to meet the promises and when the system was set up and designed, I think it was like 15 or more workers per employee.”

He meant to say “workers per retiree,” and he meant to make the exact opposite point — that two workers per retiree would not be enough to meet the promises. But even if he’d gotten it right, the statistic would have been irrelevant, because it ignores two facts: first, productivity has increased enormously, so that it takes fewer workers to provide society’s basic needs; and second, Social Security payroll taxes have been adjusted upward 21 times in 68 years, to account for the increased numbers of retirees. In 1950, workers contributed 1.5 percent of their income to Social Security (matched by an equal amount from their employers). Today’s workers pay 6.2 percent. As a result, even with “just 3.3 workers per retiree,” the system is collecting more money than it needs, depositing the surplus into a trust fund that is loaned to the government at interest.

2. Say that Social Security is going bankrupt.

"If you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now," — President Bush, Jan. 11, in a talk show-style "conversation" with workers.

Bush used the word “bankrupt” five times in 45 minutes during that Jan. 11 session, and twice in his State of the Union address. The word bankrupt brings to mind an entity unable to pay its debts and forced to sell off its assets and dissolve, ceasing to exist. In the case of Social Security, nothing could be further from the truth. The Social Security system is not a debtor; it’s a lender, having lent $1.5 trillion to the federal government over the last 20 years. Social Security will be solvent, even in the worst case scenario predicted by the Bush Administration, until 2042. At that point, if Congress had made no change whatsoever — for 38 years — it would still be expected to pay, to the beneficiaries of 2042, 73 percent of all benefits that they are currently promised. And under the existing formula by which benefits are adjusted each year, the retirees of 2042, even making just 73 percent of what they were promised, would be living better than the retirees of today. Again, that’s the worst-case scenario.

3. Predict the system’s collapse by the year 2042.

“By the year 2042, the entire system would be exhausted.” — Bush, Feb. 2 State of the Union address

Expect to hear a lot about the year 2042, the supposed doomsday of Social Security as we know it. Backers of privatization assert, as a fact, that 2042 is the year the trust fund will be depleted, at which time benefits will have to be cut 27 percent. That date comes from the most recent report of the Social Security trustees, the official audit of Social Security’s solvency, and like all such predictions, is based on complex actuarial assumptions about birth rates, death rates, marriage and divorce rates, immigration, productivity growth, inflation, employment, trends in the age of retirement, wages, interest rates, to name the most important factors.

For today’s economists to predict to the year 2042 would be equivalent to the economists of 1967 trying to predict the America of today. It’s important that Social Security economists produce such forecasts, but how seriously should they be taken by politicians and the general public?

The Social Security trustees themselves have changed their estimates, pushing back the date every year but one since 1997. [In 1997, Social Security actuaries were estimating the trust fund would be depleted in 2029.] And last year, economists in the Congressional Budget Office conducted the same analysis, with slightly less pessimistic assumptions, and predicted 2052 as the year the trust fund will be depleted.

4. Suggest the crisis is imminent by bringing up even earlier dates.

“In 2018, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes — and shortfalls then grow larger with each passing year.” — “Saving Social Security” Republican spin manual

This is just another way of saying that according to current predictions, 2018 is the year Social Security will start drawing money out of its trust fund, which by then would hold $3.7 trillion in U.S. government bonds. Drawing money out is the whole point of the trust fund, which was engineered in the 1980s as a way for the Social Security system to build up a fiscal reserve to prepare for the retirement of the baby boom generation.

5. Tell younger workers Social Security won’t be there for them.

“The current system cannot afford to pay promised benefits to younger workers.” — “Saving Social Security” Republican spin manual

Yes, and neither could the system as of 1950 pay the benefits of that decade’s future retirees. That’s why Social Security is called a “pay-as-you-go” system.

If the system stops making adjustments, which is what Bush is proposing, then yes, eventually it will deplete the trust fund and be forced to cut benefits. Not entirely, just 27 percent. Unless the Social Security trustees’ pessimistic assumptions prove inaccurate, or Congress raises the payroll tax 2 percent, or starts levying the Social Security tax on income above $90,000*, in which case Social Security could afford to pay benefits to today’s young when they retire. [*currently any wages above $90,000 are exempt from the tax.]

6. Tell people “The trust fund is an empty promise.”

“Calling the trust fund meaningless will raise hackles. Taxpayers believe it is the source of the monthly checks paid out by Social Security. But, everyone agrees that it is an empty promise.” — “Saving Social Security” Republican spin manual

Are privatization backers advocating that the U.S. government default on its debt? No. But they want people to feel the trust fund they’ve paid into since the 1980s is “an empty promise.” The trust fund, like any other federal government debt, is backed by the government’s power to tax. Congress could decide to default on the debt at any time. But it has never done so since 1789.

7. Using the biggest possible numbers, talk about the system’s “unfunded obligation” as if it were an asset-based pension plan, which it’s not.

“Social Security has a total unfunded obligation under current law of more than $10 trillion.” — “Saving Social Security” Republican spin manual

Here’s where the Bush Administration really starts to get loopy. This “more than $10 trillion” figure ($10.4 trillion in the trustees’ report), is a so-called “infinite horizon” prediction — in other words, the total shortfall for all foreseeable time. And $6.7 trillion of that “unfunded liability” occurs after the year 2078, by which time virtually all the 18-year-olds today entering the workforce will have moved onto the next world. Incidentally, the trustees also reported that a payroll tax increase of 1.75 percent on each side — worker and employer — would eliminate that $10.4 trillion deficit.

Once people have been persuaded that Social Security is in crisis and may not be there for them, the next step is to get them to accept the president’s privatization proposal.

But that, too requires a multi-part political strategy:

1. First, take simpler, more obvious solutions off the agenda.

If Social Security is facing a shortfall in 37 years, as the trustees project, then the obvious solutions would be to raise the Social Security payroll tax the appropriate amount, trim benefits, or some combination of the two.

Bush has tried to limit the parameters of the debate by ruling out the first option, the payroll tax increase. To deal with changing demographics, the Social Security tax was raised in small increments under Presidents Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Carter, Reagan and Bush Sr. But the current president says he can’t do it — because it would harm the economy.

Benefit cuts, meanwhile, are very unpopular with the public, understandably, since nearly everyone is or expects to be a beneficiary.

So Bush isn’t advocating benefit cuts, at least not openly.

The Social Security trustees report lays out a third option — direct transfers into Social Security from the federal government’s general revenues. But this option is not one that Bush has discussed.

2. Then, present a privatization proposal as the only solution.

Except it’s not called privatization. Not any more. “Privatization” no longer polls well.

The “Saving Social Security” Republican spin manual advises Republican members of Congress: “Privatization connotes the total corporate takeover of Social Security; this is inaccurate and thoroughly turns off listeners, who are very concerned about corporate wrongdoing.”

Instead, backers are to refer to it as “personalization,” which “suggests increased personal ownership and control.” The accounts are no longer to be referred to as “private accounts,” which is what the president called them last year; now they are “voluntary personal retirement accounts.”

3. Next, distract people from the fact that private accounts worsen Social Security’s financial health.

Whatever they’re called, the accounts won’t solve the system’s supposed fiscal crisis. Remarkably, senior administration officials acknowledged that fact to reporters in a White House briefing after the State of the Union address.

Private accounts would worsen the system’s finances because any money taken out of Social Security for investments would have to be made up for somehow, by tax increases, benefit cuts … or borrowing.

4. Finally, sell the idea in the abstract, but keep the details under wraps.

President Bush hadn’t campaigned on the issue except in code, but he did inform Americans after the election that changing Social Security would be his top second-term priority. Three-and-a-half months later, no bill backed by the president has been introduced in Congress, and he has yet to publicly commit to more than a general outline.

But the president’s general outline is being filled in by his own subordinates — in behind-the-scenes press briefings where reporters must pledge not to name the officials.

As those details are revealed, they present a contrast to what the president seems to be saying.

President Bush repeatedly promised that for those over 55, Social Security system will not change in any way. What he didn’t say is that for those under 55, it would change, with an option to divert increasing amounts of money into private accounts — and a formula to cut benefits for all recipients. The set-up would resemble “Plan 2” of the President’s 2001 Commission to Strengthen Social Security. Under Plan 2, the formula used to calculate the base rate of benefits is changed from “wage indexing” to “price indexing.” That’s a bureaucratic way of saying benefits will be cut dramatically, though the change will be gradual. In a 2002 analysis of Plan 2, the chief actuary for Social Security found that a shift to price-indexing would cut benefits by one-quarter as of 2042, and nearly one-half by 2075.

“The money in the account is yours, and the government can never take it away,” Bush said in the State of the Union. Upon closer inspection, it’s your money, but you’d have to invest it in one of five options selected by the trustees, and you wouldn’t be able to withdraw it or borrow against it until you retire, and when you retire, you may be required to use all of it to purchase an annuity from a private insurance company (In other words, you give them the assets in your account in return for a fixed monthly sum paid until you die). That would rule out the notion of you passing along the money that accumulates in your personal account to your children and/or grandchildren. And it wouldn’t really be “money” after it leaves your paycheck: It would be stocks and bonds, which fluctuate in value. [The “Saving Social Security” Republican spin manual advises privatization backers to “stress bond investments over stocks: Assure them that ‘triple A-rated’ bond index funds will be among workers’ secure choices.”]

As for the government not taking it away, actually, the government would take it away — about half of it — to replace the value of the money diverted from Social Security’s immediate obligations. The formula is a bit complicated — for each dollar you diverted, you’d have to pay back a dollar later on — with interest. The repayment formula outlined by the unnamed officials would be set in such a way that only if your investments outperformed inflation by 3 percent would you come out ahead, because for each dollar you divert, you also give up a portion of the Social Security benefit you receive. And the amount of money you’d be allowed to divert would be limited, starting out at $1,000 a year maximum and rising to as much as 4 percent of income, or about two-thirds of the employee half of the contribution. Which means that after 40 years of contributing to the account, odds are you would have a “nest egg” valued at about $60,000 in today’s dollars, and how long could you live off that?

All these conditions and formulas make Bush’s proposal for private accounts sound a lot less attractive than it might have sounded at first blush, perhaps not unlike the much-ballyhooed but little-used prescription drug discount cards introduced last year.

If the accounts are voluntary and people do sign up in large numbers, the government would have to borrow large amounts to fund the transition costs — some estimates say up to $2 trillion in a decade.

Then, those who opted to divert would hope for handsome returns, to deliver the “greater security in retirement” that Bush spoke of Feb. 2.

Bush is touting the rewards of stock investments, but downplaying the risk.

If the market is such a good investment, one might ask, why doesn’t the government invest in it directly — on behalf of Social Security participants — and continue to guarantee the benefits?

That, some opponents conclude, may be the essence of Bush’s proposal: trading away a national social insurance plan — a guaranteed inflation-adjusted pension plus disability and survivor benefits — for a national 401(k), in which the investment risk is born by participants.

Or, critics wonder, is all of this just a diversion, and the real point is the shift from wage-indexing to price-indexing, the biggest benefit cut in Social Security history, and a stealth victory to ideological opponents of government who’ve been critical of the program since 1935?

In an insecure world, where traditional pensions with locked-in benefits are falling away and being replaced by underfunded 401(k)s, Social Security remains the only guarantee. President Bush proposes to replace it with a gamble.

© Oregon Labor Press Publishing Co. Inc.