- The Washington Times - Friday, August 3, 2001

President Bush's Social Security Commission staff has just issued an interim report concluding that "the system is broken." Despite the immediate flurry of objections from reform opponents, it contains no surprises, reflecting what has long been known to anyone who has studied the issue carefully. But very few people are in that group. And that is the key.
The main point of the report is essentially to admit that, when it comes to central claims made to defend Social Security, the government and other apologists of the system have been lying to Americans all along. By finally "fessing up," the intent is to set the stage for reform by overcoming this long-term disinformation campaign.
The report targets three essential misrepresentations: that the status quo is a possibility; that the Social Security Trust Fund represents real assets to maintain the system and put off the day of reckoning 20 years or so; and that Americans have a right to their Social Security benefits as an unbreakable promise.
The report makes clear that the status quo is not a possibility: "Unless we move boldly and quickly, the promise of Social Security to future retirees cannot be met without eventual resort to benefit cuts, tax increases, or massive borrowing." Benefits are forecast to start exceeding payroll taxes by 2016 and the trust fund is expected to be gone by 2038, at which point payroll taxes are expected to cover only 72 percent of promised benefits, a shortfall of trillions of dollars.
Admitting that Social Security is unsustainable in its present form is crucial, as it undercuts the most effective argument against reform — the results will be worse than the status quo for at least some Americans (and you should vote against those evil politicians proposing any change). That claim is true, but irrelevant. All actual possibilities are worse than what the system promises now, as any reform would have to fund what is now a 14-digit unfunded liability. Using the false alternative of the status quo conveniently disregards that detail.
A further twist on that theme comes from Rep. Robert T. Matsu of California, the Democrats' leading Social Security spokesman that there is little need for concern, because Congress will have come up with a long-term solvency plan well before 2016. By invoking an imaginary future solution, while ignoring the fact that any such solution would require breaking some unsustainable promises now being made by the system, he finesses this reality even more neatly.
Another targeted misrepresentation is that the Social Security Trust Fund can maintain the system from 2016 to 2038, pushing the need to do something well beyond most people's time horizons. The reason is that the trust fund consists of nothing but U.S. Treasury securities, i.e, federal government IOUs. But how will the Treasury redeem those IOUs when they come due? A 2000 Congressional Budget Office report said, "To repay what [The Treasury] has borrowed from the trust fund, the federal government must raise the cash by boosting taxes, reducing other spending, borrowing more from the public, or retiring less debt," making the trust funds essentially just a commitment to massive future tax increases.
The third major misrepresentation addressed is that Americans have a secure right to their promised Social Security benefits: "What they have is a political promise that can be changed at any time, by any amount, for any reason." Despite Social Security's promotional rhetoric to the contrary, the Supreme Court long ago ruled that the government is not legally obligated to pay workers their promised Social Security benefits, and any commitments made today can simply be unmade tomorrow. And the risk is substantial, as Congress began reneging on Social Security commitments only four years after its inception.
The House Finance Subcommittee's report on establishing Social Security in 1935 stated, "We can't ask support for a plan not at least as good as any American could buy from a private insurance company. The very least a citizen should expect is to get his money back upon retirement."
Therefore, Social Security originally guaranteed that a taxpayer who reached 65 without qualifying for Social Security benefits, or who died before age 65, would be refunded all the taxes they had paid into the system. But rather than live up to that promise, the law was amended to eliminate it in 1939 (rather than a refund, applicants received a form letter telling them how the change would strengthen the system).
The Social Security Commission interim report does not lay out how to solve its problems. Indeed, the system's huge current unfunded liabilities makes all possible solutions undesirable; even if they are less undesirable than the meltdown that will occur otherwise. But by clearing up some of the "lies, damned lies, and statistics" that have been used to bait and switch the public into opposing Social Security reform, it increases, however slightly, the chances for a reasoned discussion of which option to pick from an unappetizing menu.

Gary M. Galles is a professor of economics at Pepperdine University in Malibu, Calif.

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