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View Full Version : Vast Borrowing Seen in Altering Social Security



SnakebyteXX
11-27-2004, 11:09 PM
By RICHARD W. STEVENSON

Published: November 28, 2004


WASHINGTON, Nov. 27 - The White House and Republicans in Congress are all but certain to embrace large-scale government borrowing to help finance President Bush's plan to create personal investment accounts in Social Security, according to administration officials, members of Congress and independent analysts.

The White House says it has made no decisions about how to pay for establishing the accounts, and among Republicans on Capitol Hill there are divergent opinions about how much borrowing would be prudent at a time when the government is running large budget deficits. Many Democrats say that the costs associated with setting up personal accounts just make Social Security's financial problems worse, and that the United States can scarcely afford to add to its rapidly growing national debt.


But proponents of Mr. Bush's effort to make investment accounts the centerpiece of an overhaul of the retirement system said there were no realistic alternatives to some increases in borrowing, a requirement the White House is beginning to acknowledge.

"The administration hasn't settled on any particular Social Security reform plan," Joshua B. Bolten, the director of the White House's Office of Management and Budget, said in an e-mail message in response to questions about overhauling the system.

"The president does support personal accounts, which need not add over all to the cost of the program but could in the short run require additional borrowing to finance the transition," Mr. Bolten said. "I believe there's a strong case that this approach not only makes sense as a matter of savings policy, but is also fiscally prudent."

Proponents say the necessary amount of borrowing could vary widely, from hundreds of billions to trillions of dollars over a decade, depending on how much money people are permitted to contribute to the accounts and whether the changes to Social Security include benefit cuts and tax increases.

Borrowing by the government could be necessary to establish the personal accounts because of the way Social Security pays for benefits. Under the current system, the payroll tax levied on workers goes to benefits for people who are already retired. Personal accounts would be paid for out of the same pool of money; they would allow workers to divert a portion of their payroll taxes into accounts invested in mutual funds or other investments.

The money going into the accounts would therefore no longer be available to pay benefits to current retirees. The shortfall would have to be made up somehow to preserve benefits for people who are already retired during the transition from one system to the other, and by nearly all estimates there is no way to make it up without relying at least in part on government borrowing.

Mr. Bush and Republicans in Congress have paid little political price in the last four years for the swing from budget surpluses to deficits. But some polls show that Americans consider reducing the deficit to be a higher priority than many other goals, including cutting taxes, and embracing a new round of borrowing could pose political as well as economic risks.

A reasonable amount of borrowing now, the proponents say, would avert a much bigger financial obligation decades later. They say personal accounts would yield higher returns for individuals than the current system and could be a catalyst to broader changes that would bring the benefits promised by Social Security into line with what the system, which is also about to come under intense financial strain from the aging of the baby boom generation and the increase in life expectancies, can afford to pay.

Mr. Bush has vowed to push hard to remake Social Security. Republicans in Congress say the White House has signaled to them that Mr. Bush will put the issue at the top of his domestic agenda in the coming year.

But the White House has never answered fundamental questions about Mr. Bush's plan. In particular, it has not explained how it would deal with the financial quandary created by its call for personal accounts.

Some conservative analysts and Republicans in Congress say a portion of the temporary financial gap that would be created by personal accounts could be closed through measures like holding down the growth in overall government spending. But nearly everyone involved in the debate over Social Security agrees that some borrowing will be necessary.

The main Republican players in Congress on the issue say they expect to endorse an increase in borrowing to finance the transition to a new system. But they remain split over whether to back plans that would include larger investment accounts and few painful trade-offs like benefit cuts and tax increases - and therefore require more borrowing - or to limit borrowing and include more steps that would be politically unpopular.


"Anybody who thinks borrowing money for the transition to personal accounts is going to solve the problem of the long-term solvency of Social Security doesn't understand the size of the problem," said Senator Charles E. Grassley, Republican of Iowa, the chairman of the Senate Finance Committee, which has jurisdiction over the retirement system.

Mr. Grassley said Congress would also have to put benefit reductions and tax increases on the table, in part to hold down the need for borrowing and in part to assure that any changes restore Social Security's long-term financial stability.

Under current projections used by Social Security's trustees, the government will have to begin drawing on general tax revenue to pay benefits to retirees in 2018, the first year in which scheduled benefit payments will exceed revenues from the payroll tax dedicated to the retirement system. By 2042, the government will have exhausted the Social Security trust fund - its legal obligation to pay back to the retirement system the temporary surplus in payroll tax revenues it has borrowed over the last several decades to subsidize the rest of the budget - and after that Social Security would be able to pay only about three-quarters of promised benefits.

Opponents of Mr. Bush's approach say that Social Security's financial problems can be dealt with more easily without the addition of personal accounts, and that any large-scale borrowing would erase the presumed economic advantage of establishing the accounts: spurring more national savings, a goal that nearly all economists agree is worthy and important. Any increase in private, individual savings, they say, would be partly or wholly offset by an increase in public debt. National savings are what is left after counting up everything the nation spends. This pool of money goes to investing in the expansion and modernization of business. It is a vital component of economic health.

"To the extent that the transition is debt-financed, the ostensible macroeconomic benefits from individual accounts are undermined," said Peter Orszag, an economist at the Brookings Institution who has been critical of personal account plans. "In particular, you do not get an increase in national savings. It's engaging effectively in accounting gimmicks to make it look as if you're doing something when you're not."

In an effort to pressure the White House to acknowledge some of the financial trade-offs in its approach, Democratic leaders in Congress this week asked Mr. Bush to include in his next budget an accounting of the money that would be needed for his Social Security plan.

Only by including such figures in the budget, the Democrats said in a letter to Mr. Bush, "will Congress and the American people be able to weigh the difficult trade-offs between large-scale borrowing, Social Security benefit cuts, tax increases, and other spending reductions that may be required to fund your Social Security private accounts proposal. "

The White House, which has promised to cut the deficit in half while making Mr. Bush's tax cuts permanent, has signaled that it does not intend to include the figures in its budget, since the administration has not endorsed a detailed plan.

The budget deficit in the year ended Sept. 30 was $413 billion. The total national debt is about $7.5 trillion, including $3 trillion owed by the government to itself, much of it in the form of the Social Security trust fund. Rising debt forces the government to pay out more of its revenue in interest payments, and can put upward pressure on the interest rates paid by businesses and consumers.

Some Republicans in Congress are concerned that too much borrowing would carry large economic and political costs. Senator Judd Gregg, the New Hampshire Republican who will be chairman of the Senate Budget Committee next year, said he would support borrowing money for Social Security if it was part of a plan that also included modest benefit cuts and tax increases.

But he said the additional debt might have to be accounted for on the government's books in a way that would not technically show an increase in the budget deficit in coming years.

"You've got to look at this as a very significant long-term fiscal policy decision where you're going to have a loss in the first 10 to 15 years and a significant move toward solvency in the last 20 to 30 years," Mr. Gregg said. "That mitigates against doing it in the context of a typical budget resolution."

To critics of personal accounts, Mr. Gregg's suggestion amounts to relying on budget gimmickry to hide the true costs. But supporters of the accounts say borrowing even a few trillion dollars now would be worthwhile, because it would help wipe out the retirement system's long-term unfunded liability - the difference between what it will owe retirees under current law and the amount it will take in - of around $11 trillion.

Senator John E. Sununu of New Hampshire and Representative Paul D. Ryan of Wisconsin, both Republicans, have sponsored legislation that would allow workers to contribute more to their personal accounts than most other plans proposed by members of Congress and outside groups and would not require tax increases or benefit cuts. But by some estimates it would require nearly $2 trillion in borrowing - and, in the view of its critics, much more - and even then would rely on the idea that the new system would create so much more economic growth that it would partly pay for itself by generating additional tax revenues for the government.

Representative Jim Kolbe, Republican of Arizona, said the government could probably keep new borrowing to $800 billion over 10 years, but only if Congress and the administration are willing to back tax increases and benefit cuts as part of a broad overhaul of the retirement system.

"People do not understand that tough choices need to be made," Mr. Kolbe said.

New York Times Article (http://www.nytimes.com/2004/11/28/politics/28secure.html?hp&ex=1101704400&en=cd5a720c6da1c654 &ei=5094&partner=homepage)

Gayle in MD
11-28-2004, 02:23 AM
"Gimmicks that make it look as if you're doing something you're not"

Best description I have seen so far of the whole Bush Nightmare Administration!

Gayle in Md.

Sid_Vicious
11-28-2004, 08:55 AM
Scariest fact today is that this admin has no bridle, otherwise something like this would have a check and balance. Anybody who agrees with Bush's admission that numbers won't be inserted into the plan are simply, IMPO, idiots. There ain't no responsible people in the Whitehouse, and this country's people have gotten what they asked for in this last election, doom.

I definitely have zero warm fuzzies at my age of 52 when I see the roadmap for this plan, the timing sucks. I can't believe that so many Americans are so off-centered on their own welfare to accept such a bullish, agenda driven jerk who seemingly has no concern for all of us. Big money, what else...sid

SecaucusFats
11-28-2004, 10:57 AM
The way that Social Security currently works, the money that we are paying in today is paying for retirees today. The money that our children or grandchildren will be paying in when theyíre all grown up and working will be paying for our retirement if everything stays the same. What this boils down to is that if the President creates private investment accounts for Social Security, many young people will be taking their money out of the pool that is paying for current retirees and investing it for their own future. The money that you invest will be what pays for your retirementÖsimilar to if you had just left the government out of it entirely and invested your own money to begin with. Then again, we're too stupid to do that, so the government has to do it for us. Right?

This is one of my biggest frustrations with this Administration. They just donít communicate effectively with the American people. Most people know even less than I do about Social Security (hard to believe, I know) and so stories like the one that Snakebyte referenced will be very effective in making them oppose real reform. What the press isnít telling you, though, is that according to every account given, our current Social Security system is completely unmaintanable (is that a word?). The gap between the money coming in and the money going out keeps getting greater and greater, and unless the fundamental system is changed it is just going to keep getting worse and worse. The options are to:
A.) change the system,
B.) cut benefits, or
C.) raise the retirement age.

As far as I know, those are the only options available.

I just wish that the Bush Administration would communicate the need for reform, and their plan for achieving it, to the masses. I would like to know how the President plans to pay for the gap. If that means more borrowing so that in the long run there will be less of a deficit then fine. Iím not a moron. Explain that to me, tell me why itís necessary, and enjoy my support.

People don't realize that borrowing money and raising taxes are essentially the exact same thing. I'd rather borrow the money and pay it back (with tax money) when the economy is even stronger than it is now and tax revenues don't require higher rates on individuals.

Higher taxes to pay for this is really a kind of "pay as you go" type of system, but higher taxes will hurt the economy at a time that it doesn't need it.

Of course doing nothing is the worst thing as it will require both borrowing money and higher taxes in the future.

Bush is on the right track. We need this debate to flush out how to pay for it. Everyone knows there is a ton of spending that can be eliminated to help pay for this switch-over.

One other thing--what is continually left unsaid is that the transition costs arise because given the option most 18-50 year olds would opt out of the system.

Clearly, this is a tacit admission that social security is a deeply flawed system. If it were a better choice, more would stay in.

SF

Cueless Joey
11-29-2004, 08:35 AM
Social Security is a legal pyramid.
It will collapse someday. That is invevitable.
How 'bout this idea. Don't draw funds out of it except for the retirees?
No freakin' welfare to the illegals and baby making machines and lazy fat azzes.
At least limit it .

Rich R.
11-29-2004, 10:07 AM
<blockquote><font class="small">Quote Cueless Joey:</font><hr> Social Security is a legal pyramid.
It will collapse someday. That is invevitable.
How 'bout this idea. Don't draw funds out of it except for the retirees?
No freakin' welfare to the illegals and baby making machines and lazy fat azzes.
At least limit it .
<hr /></blockquote>
Joey, it is obvious that you don't have a clue about the benefits payable under Social Security. You may be confusing Social Security with some other programs.

F.Y.I., Social Security, is not a welfare program. It is an "entitlement program" and you have to earn that entitlement. Think of Social Security as a very large insurance policy. You pay premiums, your F.I.C.A. taxes, and when you are eligible, either for retirement or you become disabled, you are entitled to benefits. There are minimums that have to be paid in, before you are elligle to take anything out.

It certainly is not a welfare program for illegal aliens. In fact, you have to be in this country legally to receive benefits.

I strongly urge you to get more information about the Social Security system and the benefits it handles. You may be a little surprised and you may need them one day.
One thing is a fact; you can not buy a private insurance policy that will pay the same benefits.

BTW, the system would be fine, if the polititians would keep there little hands off of it. As polititians will tend to do, they like to increase benefits without increasing the taxes you pay to get those benefits. You don't have to be a fiscal expert to know that kind of thinking will not work for long.

SpiderMan
11-29-2004, 10:19 AM
<blockquote><font class="small">Quote SecaucusFats:</font><hr> The options are to:
A.) change the system,
B.) cut benefits, or
C.) raise the retirement age.
SF
<hr /></blockquote>

Or, we could just default on our foreign debt. All of our paper held by European, Asian, and other businesses and governments would be declared worthless. With exceptions, of course, for any countries that never missed any repayments to us /ccboard/images/graemlins/wink.gif

SpiderMan

Cueless Joey
11-29-2004, 11:23 AM
http://www.manews.org/0104elitespush.html [ QUOTE ]
It certainly is not a welfare program for illegal aliens. In fact, you have to be in this country legally to receive benefits<hr /></blockquote>
I'm not holding my breath.

Rich R.
11-29-2004, 12:05 PM
Joey, that is an interesting article. Of course, it does make it clear that it has not passed, yet. If it passes, you will only have the current administration to blame. As I said before, the polititians should keep there hands off of the system.

The article does make it clear that these people would be getting benefits based on their work and the F.I.C.A. taxes they paid. Therefore, it is not welfare.
Currently, taxes are being taken from these people and they do not get any benefits in return, therefore, they are supplementing the system.

BTW, I don't have time to go into it, but the article is also filled with half truths and information that is flat out wrong. It would take me too long to give you the correct information here. Sorry.