A Bridge to Sell

Editorial

New York Times

January 24, 2005

One of the main talking points in the administration's drive to privatize Social Security is that retirees have nothing to fear. "If you're a senior receiving your Social Security check, nothing is going to change," President Bush said recently. Mr. Bush seems to presume that older Americans are indifferent to the future retirement security of their children and grandchildren. But even taken on its face, the argument does not hold up.

The president promises that under a private retirement scheme, anyone age 55 or older would continue to receive full Social Security benefits. What he repeatedly fails to mention is that privatization would require some $2 trillion in new borrowing over the next 10 years and an additional $4.5 trillion in the decade thereafter. That's on top of the trillions that need to be found to cover the costs of Medicare and Medicaid and - if the president gets his way - to make this decade's tax cuts permanent. It's foolhardy to assume that the government could continue to meet all of its obligations, including the payment of Social Security benefits, under such a mountain of debt.

All told, by 2030, when today's 55-year-olds turn 80, the national debt would be as big as the economy itself, according to a calculation by the Center on Budget and Policy Priorities that uses data from Social Security and the Congressional Budget Office. To compare, consider that in the last 50 years, national debt has equaled only 38 percent of the economy on average, and that percentage includes the tremendous overhang of debt from World War II.

Large and virtually permanent fiscal imbalances could create severe hardship. At the least, big and ongoing deficits erode living standards because they reduce the money available for investment in the economy. At worst, enormous and endless deficits could provoke a loss of investor confidence, leading to higher interest rates and inflation, lower stock and bond prices, less household wealth, less government spending and slower economic growth.

If Congress faced that kind of crisis, it's safe to assume that everything would be on the table, including Social Security retirement benefits. This would be especially true if the crisis was provoked by privatization. The reason: diverting a portion of payroll taxes into private accounts - the centerpiece of Mr. Bush's privatization scheme - would greatly accelerate the exhaustion of the Social Security trust fund, unless the government made huge transfusions of other tax revenue into the fund. It could be difficult to justify such transfers with an economy in dire straits. A dwindling trust fund, in turn, could create a political dynamic for benefit cuts that would be hard to resist.

Even if Congress managed to keep the commitment to continued funding of full Social Security benefits for today's retirement-age population, senior citizens could find that their other sources of retirement income, especially stocks and bonds, had taken a hit. Their adult children would probably not be able to provide a safety net. Indeed, a country in fiscal crisis is one in which adults are more likely to turn to their elderly parents for help.

Despite the risks to their own economic well-being in retirement, some older Americans might be willing to support Social Security privatization if it would ensure a stable retirement for their children and grandchildren. But it wouldn't. Privatization would require potentially debilitating borrowing up front, in exchange for a drastically reduced benefit later on, no matter how well, or poorly, private accounts performed. So there's no reason for senior citizens to support it and plenty of reasons to oppose it. Mr. Bush is wily, and wrong, when he tries to dismiss older Americans from the debate.