By Martin Wolk Executive business editor
msnbc.com
updated 1/14/2005 6:20:57 PM ET 2005-01-14T23:20:57
ANALYSIS

In its 70-year history, Social Security has faced dire predictions, including the threat of insolvency. In the mid-1970s and again in the 1980s, the program faced staggering projections of short-term and long-term deficits and came within months of depleting its reserve funds.

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In 1977, changes were made that were supposed to keep the system solvent well into the 21st century. But after five tumultuous years Congress and President Reagan were forced to confront the issue again. This time a bipartisan group of lawmakers and business leaders, under the direction of Alan Greenspan, came up with a solution that put the system on a path that is projected to keep it solvent until 2042 or 2052, according to the most widely accepted estimates.

Nancy Altman, who was an aide to Greenspan on the Social Security commission, remembers “exactly the same kind of hype” as we are seeing today. “It was exactly the same — the sky is falling,” said Altman.

The difference is that the problems facing the system in the 1980s were truly urgent. "It really was a crisis," said Mary Falvey, a member of the Greenspan commission. She remembers being told that Congress had to act by April 1983 to keep the Social Security checks from grinding to a halt two months later.

This time around, Social Security is years away from anything that honestly could be described as a financial crisis. But that has not stopped President Bush from trying to whip up enthusiasm for his proposed personal retirement accounts by warning of an imminent disaster.

“If you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now,” he said Tuesday at a forum on Social Security. The stark choice of words was hardly a slip of the tongue – Bush used the word “bankrupt” five times in the 45-minute session.

He also warned of a potentially “bankrupt” system in a radio address last month, referring to demographic changes that signal a “looming danger.”

“In the year 2018, for the first time ever, Social Security will pay out more in benefits than the government collects in payroll taxes,” Bush said.

That is just plain wrong. In 14 of the past 47 years, including 1975 to 1983, Social Security paid out more in benefits than the government collected in payroll, with the gap reaching $10 billion in 1983. So the projected “crossover” point in 2018  is a relatively meaningless milestone, say opponents of Bush’s privatization plans, even as they acknowledge the system faces long-term problems.

Bush’s statements “appear designed to further a widespread perception, especially among younger people, that Social Security will entirely collapse and that there will be nothing for them when they retire,” said Bob Greenstein, executive director of the Center on Budget and Policy Priorities.

The White House press office did not return phone calls seeking an explanation.

Greenstein referred to a memo written this month by Peter Wehner, Bush’s director of strategic initiatives, who told conservative supporters that the White House is aiming to convince the public that “the current system is heading for an iceberg.”

“That reality needs to be seared into the public consciousness; it is the pre-condition to authentic reform,” according to the leaked memo, whose authenticity was confirmed by the White House.

The emphasis on 2018 by Bush and other officials relies on “either an implication or very often an explicit statement” that the Social Security trust funds have no real assets, Greenstein said. Try telling that to the Social Security trustees, including Treasury Secretary John Snow, who offer a detailed list of government securities they hold, paying up to 9.25 percent interest and totaling more than $1.6 trillion.

In an interview with The Wall Street Journal published this week, President Bush acknowledged that the initial debate on Social Security will be over “whether there's a problem at all.”

“This administration firmly believes there is a problem; and not only that, believes that once we recognize the problem, we have a duty to do something about it,” Bush said in the interview.

Indeed there are some political leaders and even economists who believe Social Security can survive in its current form. They point out that Social Security actuaries and Congressional Budget Researchers who have studied the problem have factored in relatively conservative figures for economic growth and immigration.

But most advocates of the current Social Security program acknowledge the system faces a long-term financing problem.

“There is obviously a problem,” said Greenstein. “There is a long-term shortfall. There is a need to take action on it.”

Even the AARP, the powerful lobbying group for older Americans, recognizes that changes need to be made. At a Brookings Institution forum this week John Rother, AARP's point man on the subject, suggested raising the wage cap on Social Security payroll taxes, currently at $90,000, and bringing into the system some of the few employees not covered by it. Raising the wage cap alone could close 40 percent of the financing gap, he said.

“I'm certainly not part of the head-in-the-sand school,” he said. “Our view is we should do this (i.e. make any necessary changes) sooner rather than later.”

By exaggerating the severity of Social Security’s problems, Bush risks alienating even many of those who might be inclined to support some version of the voluntary personal accounts he is so determined to push through as a central plank in his new “ownership society.”

He might do well to heed the advice of President Reagan, who chose to leave the future of Social Security largely in the hands of a commission that included representatives of both parties and appointees from both houses of Congress.

"For too long, too many people dependent on Social Security have been cruelly frightened by individuals seeking political gain through demagoguery and outright falsehood, and this must stop," Reagan said. "The future of Social Security is much too important to be used as a political football."

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