President Bush and his cohorts have crisscrossed the country for months now to sell the American public on Social Security privatization. In public statements, proponents of privatization throw in a big scary number for good measure, followed by the admonishment that Congress should solve Social Security's problem permanently. While making Social Security sustainable is a laudable goal, infinite horizon accounting is a flawed approach, is only used in the Social Security context for political expediency, and serves no other purpose than to scare people into accepting irresponsible benefit cuts that would ultimately destroy Social Security.
In this year's State of the Union address, the president said that "[w]e must make Social Security permanently sound." For the past few decades, policymakers were content to worry about Social Security's future for the next 75 years. When President Reagan introduced changes to the program in 1983, it was expected that those fixes were good for two generations. Future generations were trusted to handle what would come thereafter in their own time and their own way. For the Bush administration, trusting future generations, say 500 or 10,000 years from now, to shape their retirement security is no longer an option. Policymakers should thus worry about the program's finances and its impact on our great-great-great-great-great-great-great-grandchildren and their heirs.
Notwithstanding the rationale for an infinite planning horizon, economists have found a way to calculate Social Security's deficit for the infinite future. It amounts to about $11 trillion, a figure that is often sprinkled into the Social Security privatization debate without much further discussion. The intended use of this figure is merely to scare people. In economic terms, it is actually a manageable 1.2 percent of future gross domestic product (GDP), substantially less than the amount needed to make President Bush's tax cuts permanent.
In other matters of public policy, President Bush prefers a time horizon of zero years. In the same State of the Union address, President Bush talked about the need to win the war on terror and to spread freedom around the world. These are noble and worthwhile goals, but they don't come cheap. A broad-based national security agenda that includes better intelligence, improved foreign aid, financial support for civic society in developing economies, efforts to reduce our dependence on foreign oil, among others costs money, and possibly a lot of it. For instance, Columbia University Professor Jeffrey Sachs recently called on the U.S. government to increase its funding for the Millennium Challenge Goals by $40 billion a year. Other parts of a broad security agenda could easily add tens if not hundreds of billions of dollars per year. Yet, despite the daunting task of financing this effort, there is little public debate over what exactly the parts of such an agenda are, how much they will cost and where the money will come from, especially in light of the fact that there is no additional money in the president's current budget for these goals. Why does the president think that an infinite time horizon is reasonable for Social Security, when the time horizon for his national security agenda is in fact zero years?
Similar inconsistencies occur when planning for other national needs, such as highway construction, education, and research and development, among others. Shouldn't we have a sense of what this will cost us for at least the next decade? After all, it takes some time to build up infrastructure, such as highways, new schools, and so on. Interestingly, the Bush administration decided not to plan ahead much. Three years ago, one year before the infinite standard for Social Security's solvency was first used by the Social Security trustees, the Bush administration shortened its budget horizon from the standard 10 years to just five years. It seems that the Bush administration deemed it more important to plan for Social Security's needs in 2080 and beyond than to anticipate the country's infrastructure demands in 2011.
Using an unreasonable and unjustified standard to evaluate Social Security's solvency serves no useful purpose. It is meant to scare people into accepting solutions that are equally unreasonable. By all accounts, President Bush's privatization proposal will permanently cut benefits. Take, for example, the changes to benefit calculations proposed in 2001 by his Commission to Strengthen Social Security. According to the Congressional Research Service, these changes would reduce Social Security benefits from their currently scheduled levels by 15 percent for an average lifetime earner who is 41 years old today, by 31 percent for a 21-year-old, and by 45 percent for somebody born today. The cuts would continue into the infinite future, gradually phasing out Social Security. The Bush administration apparently feels it can sell such an irresponsible move only by using scare tactics based on unrealistic standards. Social Security is too important to America's families to let scare tactics rule the debate.
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Christian E. Weller is a senior economist at the Center for American Progress.