One of the Largest New Government Spending Programs in History
It is now well-known that the President’s plan to partially privatize Social Security would dramatically increase the national debt over the next half century.
What is even more startling is that between 2011 and 2050 the Bush Social Security plan would increase government spending on interest by $6.5 trillion in 2005 dollars. While the White House has sought to downplay the significance of the additional borrowing due to private accounts – the increase in debt (even including savings from price-indexing) — would increase government spending on interest by an average of $163 billion a year between 2011 and 2050-$2.8 trillion in the last decade alone.
The cost of new interest payments from the Bush Social Security plan would be:
• Greater than total cost of the entire US Army, Navy, or Air Force by the 2030s
• More than three times the projected Homeland Security budget from 2011-2050. From 2011-2050, additional interest payments would exceed projected spending on Homeland Security by more than $4.5 trillion in 2005 dollars.
• Nearly 60 percent greater than total spending on veterans benefits. From 2011 to 2050, the additional interest payments would exceed projected spending on veterans benefits by more than $2.4 trillion in 2005 dollars.
• More than 70 percent greater than combined federal support for non-defense research and development. From 2011 to 2050, additional interest payments would exceed projected spending on research and development by $2.8 trillion in 2005 dollars.
• 35 percent greater than the federal commitment to education. From 2011-2050, additional interest payments would exceed projected spending on education by more than $1.7 trillion in 2005 dollars.
• Nearly five times the amount spent on the EITC and Child Tax Credit. From 2011 to 2050 additional interest payments would exceed projected spending on these programs by $5.2 trillion in 2005 dollars.
The Bush Social Security plan would lead (under current federal borrowing trends) to the United States paying an additional $5.6 trillion in today’s dollars in interest payments to our largest ten foreign lenders between 2011 and 2050. According to data from the Federal Reserve, foreign investors have financed an ever growing share of the government’s deficits, averaging about 81 percent between 2001 and 2004. If these trends continue under the President’s partial privatization plan:
• Japan would own additional debt equal to 6 percent of GDP, while China and the UK would hold an additional 3 percent each on average in the 2040s.
• Additional interest payments to China alone would total almost $1 trillion in 2005 dollars between 2011 and 2050.
• Combined payments to our top three lenders (Japan, China and the UK) would total about $4 trillion in 2005 dollars between 2011 and 2050-more than five times the $709 billion we will spend on foreign aid over that time.
Rather than lifting burdens on the next generation, implementing private accounts would force our children to pay off trillions in debt —either through higher taxes or less investment in our future. Traditionally, most have agreed that helping future generations better deal with the burden of supporting our future retirees is the main reason to act early to improve Social Security solvency. Yet, the President’s Social Security plan would impose staggering interest costs on every American family and child. These additional costs would translate into:
• $48,925 in additional debt and $2,765 in additional interest payments, in inflation adjusted dollars, for a family of four in 2050 alone.
• For each person under the age of 20 in 2005, annual interest payments on additional debt, in inflation adjusted dollars, would more than triple from $201 in 2020 to $691 in 2050.
This new debt is completely unnecessary for saving Social Security: All of these interest payments emanate from borrowing to finance individual accounts – which the White House has already admitted are not necessary for solvency.
If the President’s proposal pushes up interest rates by driving down personal savings these interest costs could be even higher. If private accounts create a false impression about the size of Americans’ savings, many could reduce savings in other areas-generating a net reduction in national savings. This could boost interest rates by an average of one to two percentage points depending on the extent to which Americans cut back. If personal savings declined by just 10 cents for each dollar put into private accounts, the long-term interest rate would rise by an average of 0.9 percentage points by the 2040s-adding $597 billion in 2005 dollars to our total interest payments in that decade.
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