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Social security: lies, lies, and damn lies


Adolf Hitler wrote in Mien Kampf "The people will more easily fall victim to a big lie than to a small one." The key is to keep repeating it over and over.

For the second time in three years, the Bush administration is using the Big Lie Technique to advance its agenda.

The first Big Lie was the justification for war in Iraq. This war was always on the neocon agenda. It was the centerpiece of the Project for the New American Century well before 9/11. But it would be difficult to sell the war with the rationale that it was necessary for advancing American world hegemony. So the imminent threat of Iraqi WMDs and Iraq's connection to 9/11 became the neocons' best selling points. Both were false. Yet huge numbers of Americans still believe these falsehoods. The Big Lie, after all, is powerful.

The latest Big Lie is being used to sell Social Security privatization.

The Social Security system is now 70 years old. It was designed to be both an insurance and retirement income plan, with FICA (Federal Insurance Contributions Act) taxes on current workers used to pay retirees, widows, and the disabled. During the first 50 years of Social Security, the FICA tax and earnings base were adjusted regularly due to inflation and shifting demographics.

Problems arose in the 1980s, when the Feds realized that retiring baby boomers would cause a population bubble in Social Security recipients. So a bi-partisan commission established a trust fund to meet the bubble by raising payroll taxes and the income base beyond current needs. After the boomer bubble passes, the system will revert to the "pay as you go" model.

The system now collects payroll taxes from employees at 6.2 percent of pay up to $90,000 and is accumulating excess revenue for the trust fund. When the baby boomers start retiring in 2008 and beyond, the trust fund will begin to be tapped until we're back to "pay as you go."

So what's the problem? There is no problem, despite all the Bush administration rhetoric being thrown around.

When Bush goes on his stage-managed tours to sell his solution to the "problem," he uses a portable lectern and backdrop with "Saving Social Security" plastered all over it. This is a variation on the Big Lie Technique. It's meant to scare everyone about the coming crisis and then provide a means to save the situation.

The trouble is that the way Bush proposes to save Social Security has nothing to do with solving the problem he claims exists. What it will do is provide payback to Bush's campaign contributors from the financial services industry, all of whom will reap enormous benefits from privatization.

But this is what we've come to expect from Republicans who have never liked Social Security, voted against it from day one, and vote against every reasonable measure to strengthen it. Even Bush has finally admitted that his proposals will not fix the problem he says exists.

The real purpose of this effort is to weaken Social Security by siphoning off trillions of dollars to private accounts so the system will be unfixable. Using the Big Lie Technique, blatant falsehoods or misleading information are being spread to support the Bush proposals. Here are some examples of those falsehoods, followed by the facts:

By 2017, the system will be in the red and in 2042 will be "broke."

No, the baby-boomer bubble will have passed and we will be back to "pay as you go" in 2042, as it was during the first 50 years of the system.

The trust fund is an illusion, since it has no cash, only government bonds.

If the trust fund is only an "illusion," then we're in more trouble than anyone can imagine. This logic implies all US government obligations are illusions. If the US government defaults on its securities, a worldwide financial crisis of unprecedented proportions will occur. It won't be allowed to happen.

The return on the trust-fund investments of 2 percent can be beat by private accounts invested in the stock market.

This is a fundamentally wrong comparison. Remember, the trust fund is a temporary situation and Social Security was never meant as an investment vehicle. The fund's current returns are low because interest rates are low. In prior years, the return was as high as 7 percent.

OK, but young people would be much better off if the private accounts were implemented due to the growth potential of stocks.

Don't count on it. This proposal is much more risky than its advocates care to admit. The projections leading to a trust-fund depletion in 2042 assume a 1.8 percent annual GDP growth, low by historical standards. People trying to prove that stocks would do better assume a 7 percent growth in the market. If stocks are going to be that good because of a better overall economy, then the Social Security trust fund will never be depleted.

Furthermore, the return on stocks will have to make up for the fact that one-third of the recipient's Social Security payments will be eliminated. The stock appreciation will also need to cover the administrative costs of the private investment companies managing the funds. These costs in Britain have run more than 4 percent of assets handled per year and were a primary cause for Britain's system to be a complete failure, leaving many retirees in poverty.

Investing part of Social Security would stimulate the economy.

No, it wouldn't, unless the investments were in initial offerings of new companies or put in venture-capital funds. But those are the riskiest investments imaginable.

Simply buying stocks and bonds on the open market just moves funds from one owner to another without adding anything to new capital formation.

So what is the alternative plan from the opponents of privatization?

We don't need one. We just need to go back to "pay as you go" in 2042. Even with no change in tax rates, retirement age, or income base, the system will be able to pay 75 percent of projected benefits, which would be much higher than today's benefits.

All benefits could be paid by allowing the $90,000 base to float upward with inflation, raising the retirement age to 68 (reflecting longer life expectancies), or slightly adjusting the FICA tax rate. These are the types of actions that that have been routinely done throughout the history of Social Security. And they will assure the continued viability of the system.

There are other reasons to reject Bush's scheme.

The US is approaching a financial crisis caused by gross mismanagement of the Federal budget. Unsustainable tax cuts are creating systemic deficits, which will not go away in the foreseeable future and are already causing a severe weakening of the dollar. Privatization will add trillions to the annual deficit and national debt when funds are channeled away from the system and current obligations are continued.

Don't believe privatization advocates when they claim current Social Security recipients won't be affected. When the massive annual deficits come home to roost, everything will be on the table for cuts. You can be sure this will include payments to retirees as well as every other government program.

Isn't that just what the neocons always wanted?