By Robert Freedland
July 11, 2005
I have been very disappointed with the leadership in this nation that undermines the faith of Americans in this key "safety net" for senior citizens since the Great Depression. They seek to change the delivery of benefits by dividing the generations, and encouraging fear and distrust of the United States Government.
President Bush visited the federal facility that houses the special issue Treasury bonds and stated "There is no trust fund, just IOUs that I saw firsthand that future generations will pay -- will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs," (see http://www.marketwatch.com from 4/5/05).
Is that the appropriate talk from the President of the United States who denies the very existence of the $1.3 trillion Social Security Trust Fund? Is it appropriate for the President of the United States to undermine the credit-worthiness of the United States Treasury by claiming that they are "just IOU's"? Does the "full faith and credit of the United States" mean nothing to him?
The Republicans go further by trying to divide generations, in a technique that they usually attribute to Democrats, by using "class warfare". That is, they pit the young against the old, by claiming they will protect those born before 1950, but for the rest, they better watch out! What we need is a President who reassures the public that America always makes good on its Treasury Bonds and that Social Security will be there for them.
We all know that Social Security is a "pay as you go" system. That is that current workers are funding the surplus and retirement benefits of current retirees. We all know that as the baby boomers retire that the surplus will be needed as receipts into the Fund will be less than expenses. So how is it that anyone can propose diverting funds from the Social Security Trust Fund Surplus to private accounts without accounting for the increased problems with future benefits that will result?
We have heard that the fund will run out in 2041 if nothing is done. That benefits will need to be cut to 73% of promised after that. But do we ever hear about the assumptions made by this dire prediction? That the exhaustion of the Trust Fund is predicated on 1.8% economic growth. As the Heritage Foundation, the Republican think-tank, itself points out, America's economy has been growing at a historic rate of 3.2% since 1970! (http://www.heritage.org/Research/Economy/wm601.cfm) If the economy continues to grow at this historic rate, there will likely be no shortfall, and the surplus in the Trust Fund will be able to fund Social Security benefits in perpetuity without any changes. On top of this, the $11 trillion shortfall that is debated by those critical of our current system, is based on the "infinite" estimate, an estimate deemed meaningless by actuaries, knowing that economists have it hard enough estimating what will happen in the next month, let alone in an infinite time span.
Furthermore, it is deceiving to say that the Social Security Trust Fund has been "spent" by the government. The Social Security trustees have invested the Trust Fund in interest bearing special issue Treasury Bonds. These are actually better than marketable security because they are redeemable at par, that is they are not subject to market risk that is associated with other marketable bonds that will lose value if interest rates rise.
No matter what anyone invests in, people get "pieces of paper", be it Treasury Bonds, certificates of deposit from a bank, morgage notes, or stock certificates. The value of these papers are not meaningless because they have been printed on something made from pulp. The value is due to the likelihood of being repaid or appreciating. Nobody with any sense of decency could denigrate the United States Treasury.
It is true that the United States may need to roll back some of the tax cuts that were given to the top 1% of earners in America to pay back these Treasury Bonds. (http://www.reformer.com/Stories/0,1413,102~8854~2915642,00.html) But it is also true that Social Security taxation is a regressive tax system that tops out taxes at $90,000. Thus, the workers and middle-class taxpayers of America have been paying into the Federal Government coffers these payroll taxes, that were used irresponsibly by President Bush to cut taxes for the wealthiest members of America. He is crying crocodile tears when he complains about having to raise income taxes to pay back this debt.
In 1935 when FDR was formulating the Social Security plan, he first hand saw the dangers in speculation in the stock market that led to the financial ruin of many Americans. Social Security is about reducing risk for Seniors, keeping them out of poverty, and allowing them to plan their financial futures in confidence. Let us encourage private investments above and beyond Social Security in equities in the form of IRA's, 401K's, 403b's, and 457 programs among other retirement vehicles. But let us protect the Social Security system that has worked for our parents and grandparents, and let us insure that it continues to work for our children and their children as well!
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