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Tim Russert's Meet the Press interview on Sunday with House Ways and Means
chairman Bill Thomas perpetuated two basic misapprehensions. One is that Social
Security's trust funds will begin to decline in 2018. The actual projection
of Social Security's trustees is that in 2018, the trust funds will amount to
$5.3 trillion, growing to $6.6 trillion by 2028.
It is true that beginning in 2018, benefits owed to retirees will begin to
exceed payroll tax revenue. But the interest on the trust funds' U.S. Treasury
securities will be more than enough to finance the gap between payroll taxes
and promised benefits. The extra interest left over will be used to buy more
Treasuries, enabling the trust funds to continue growing for another 10 years.
The government won't need to begin redeeming the bonds themselves until 2028,
according to the Trustees' forecasts, with the projected date of depletion in
2042—when payroll taxes coming into the system at that time will be sufficient
to pay around 70 percent of promised benefits.
Nonetheless, here's the exchange
between two people who ought to know better:
MR. RUSSERT: 2018, the surplus keeps growing until that date, and then we
start using it down. But not until 2042 do we lose—we will not have the
funds to pay 100 percent of all benefits, 37 years from now. Why worry about
it?
REP. THOMAS: Well, one of the reasons is the funds that you talked about beginning
to go downhill in 2018 began to be built up in 1983 when we increased the
payroll tax far beyond what we needed to fund the system at that time. So
we've been riding the up part of the roller coaster since 1983. We tip in
2018. And quickly we go down in terms of that fund and it does go below the
zero mark in 2042. So in terms of these fundamental funds for society's well-being,
20 years is a relatively short period of time. We need to be concerned now.
And I really want to compliment the president for getting the discussion of
what we do with Social Security on the table.
Others
have noted that in the same interview, Russert further confused viewers
with this act of inflation conflation:
MR. RUSSERT: Right now, we have a cost-of-living increase, a COLA increase,
that is tied more to wages than actual inflation. It is inaccurate by everyone's
estimation. Should that be adjusted in order to be accurate and specifically
related to inflation?
It won't be easy to unravel Russert's mistakes in those three innocent sounding
sentences, but here goes: after workers retire, their Social Security benefits
increase at the rate of inflation—not wages, as Russert implied. While there
is some legitimate debate about how accurate the inflation index is, that discussion
has absolutely nothing to do with the benefit cuts that the President's Commission
to Strengthen Social Security proposed. Those steep cuts affect each new retiree's
starting benefits, which are now set to replace a portion of his or her past income
after taking into account improvements in living standards—not
price inflation—over the worker's career. That system keeps Social Security's wage replacement rates consistent
year in and year out. Under the commission's proposal, the benefits of future
retirees would be based on price, rather than wage, inflation throughout their
careers. The upshot is that Social Security's wage replacement rates would steadily
decline over time.
The Center on Budget and Policy
Priorities calculated that price indexing would have this effect: for
an average wage worker, under current law, 36 percent of past earnings would be
replaced by Social Security retiring in both 2042 and 2075; but under the commission's
price indexing proposal, only 27 percent of past earnings would be replaced in
2042 and just 20 percent for someone retiring in 2075.
While the mechanics of wage vs. price indexing can obviously be mind-numbing for
journalists and most other citizens, there's an important moral issue involved.
From one generation to the next, living standards for everyone rise because workers
become more productive. When workers retire, Social Security recognizes the value
of their contribution to the improved living standards of succeeding generations
by setting benefit levels that keep up with past wage growth. By ending the practice
of linking Social Security benefits to improvements in living standards, the president's
commission would be telling future workers, in essence, that they won't be able
to enjoy the fruits of their own labor. Instead, their living standards in retirement
would be tied to living standards back when the new law took effect. Benefit levels
would fall further and further behind the prevailing standard of living for each
new generation of retirees. That is certainly not a good idea "by everyone's
estimation."
Greg Anrig is vice president of programs at The Century Foundation. |
Taking Note
