Tuesday, February 16, 2010

Paul Ryan's roadmap: "Pure Bilge"

While some silly people continue to claim we should be grateful for introducing a slippery plan to fix some of our country's "systemic ills," Michael Hiltzik of the Los Angeles Times takes a look at Paul Ryan's Roadmap.

He finds the Paul Ryan roadmap to be "pure bilge."

Social Security comes in for particular abuse. Ryan states that "Social Security's shrinking value and fragile condition pose a serious problem. . . . To maintain the program's significant role as a part of the retirement security safety net, Social Security's mission must be fulfilled . . . without bankrupting future workers."

One doesn't want to be picky about an elected congressman's words, but with all due respect, these words are pure bilge. They come straight from the talking points of Social Security's historical enemies: conservatives who have never believed that the government should play such an important role in people's retirement planning, and mutual fund and insurance companies that hanker for the business generated by millions of Americans looking for a profitable place to park their retirement assets.

Social Security's value to the average American isn't "shrinking" -- it’s expanding. In 1962, it accounted for 30% of the income of Americans aged 65 and older; in 2007 that figure was 36%. (These numbers come from the Social Security Administration.) Given what's happened to most families' financial assets since 2007, the percentage probably is even higher today.

Its "fragile condition"? Social Security runs an annual surplus and has done so since 1983; no other government program can make that claim.

By the way, even when the program starts paying out more in benefits than it collects in payroll tax, that's not a "crisis," as it's often portrayed -- it's the expected outcome of changes implemented after 1982, when the tax was raised sharply to provide a cushion against the coming wave of baby-boomer retirements. The accumulated surplus in the program's trust fund at the end of 2008 was $2.4 trillion.

But ... what about the freedom of parking money in private accounts?

But as with every "guarantee" of financial wealth, this is a shell game. For one thing, the guarantee has to be funded from the federal budget -- presumably by borrowing. That's because Ryan's plan sucks revenue out of the program for years before the ostensible gains from stock market earnings take root.

When Social Security's chief actuary examined a Ryan proposal in 2008 (it's nearly identical to the Roadmap provisions, as far as I can tell), he concluded that annual infusions from the general fund totaling $4.3 trillion in present value would be required over a long, 30-year transition period, from 2032 through 2063.

"The individual account plans don't hurt in the short term," economist Peter A. Diamond of MIT, an expert on Social Security, told me this week. "But over the medium term they hurt a lot."

Diamond observes that shifting any portion of the program's funding to the general fund from the payroll tax, which is dedicated to Social Security and Medicare, undermines the future of Social Security.

"Politically, dedicated revenue is much more secure than revenue you have to take out of the annual budget," Diamond says. "The fact that we'll go through an extended period with the money coming out of the annual budget puts Social Security at risk. And the fact that to handle this we've got to do a whole lot more borrowing puts the finances of the entire federal government at risk."

As the Congressional Budget Office advised Ryan last month, the guarantee would become even costlier "during periods of economic stress" like recessions -- for that's when investment returns are most likely to fall below the inflation rate and therefore trigger greater and possibly more politically sensitive infusions from the government. One could argue that such major market reversals will occur only rarely in any average worker's lifetime. But one could also point out that we've had two in the last 11 years.

So what's Ayn Rand fan Paul Ryan really up to?

What is Ryan really up to? His Roadmap would achieve a goal that conservative opponents of Social Security have cherished for decades: killing the program by undermining its broad base of popular support. It would sap Social Security's resources, increase its complexity and hammer a wedge between the currently retired or near-retired (who would be guaranteed their current statutory benefits) and younger workers and the future workforce (who would be increasingly on their own). The term for this is "divide and conquer."

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