NYTimes.com > Opinion

Stopping the Bum's RushBy PAUL KRUGMAN
(also available on pkarchive.org)

Published: January 4, 2005

The people who hustled America into a tax cut to eliminate
an imaginary budget surplus and a war to eliminate
imaginary weapons are now trying another bum's rush. If
they succeed, we will do nothing about the real fiscal
threat and will instead dismantle Social Security, a
program that is in much better financial shape than the
rest of the federal government. 

In the next few weeks, I'll explain why privatization will
fatally undermine Social Security, and suggest steps to
strengthen the program. I'll also talk about the much more
urgent fiscal problems the administration hopes you won't
notice while it scares you about Social Security. 

Today let's focus on one piece of those scare tactics: the
claim that Social Security faces an imminent crisis. 

That claim is simply false. Yet much of the press has
reported the falsehood as a fact. For example, The
Washington Post recently described 2018, when benefit
payments are projected to exceed payroll tax revenues, as a
"day of reckoning." 

Here's the truth: by law, Social Security has a budget
independent of the rest of the U.S. government. That budget
is currently running a surplus, thanks to an increase in
the payroll tax two decades ago. As a result, Social
Security has a large and growing trust fund. 

When benefit payments start to exceed payroll tax revenues,
Social Security will be able to draw on that trust fund.
And the trust fund will last for a long time: until 2042,
says the Social Security Administration; until 2052, says
the Congressional Budget Office; quite possibly forever,
say many economists, who point out that these projections
assume that the economy will grow much more slowly in the
future than it has in the past. 

So where's the imminent crisis? Privatizers say the trust
fund doesn't count because it's invested in U.S. government
bonds, which are "meaningless i.o.u.'s." Readers who want a
long-form debunking of this sophistry can read my recent
article in the online journal The Economists' Voice
(www.bepress.com/ev). 

The short version is that the bonds in the Social Security
trust fund are obligations of the federal government's
general fund, the budget outside Social Security. They have
the same status as U.S. bonds owned by Japanese pension
funds and the government of China. The general fund is
legally obliged to pay the interest and principal on those
bonds, and Social Security is legally obliged to pay full
benefits as long as there is money in the trust fund. 

There are only two things that could endanger Social
Security's ability to pay benefits before the trust fund
runs out. One would be a fiscal crisis that led the U.S. to
default on all its debts. The other would be legislation
specifically repudiating the general fund's debts to
retirees. 

That is, we can't have a Social Security crisis without a
general fiscal crisis - unless Congress declares that debts
to foreign bondholders must be honored, but that promises
to older Americans, who have spent most of their working
lives paying extra payroll taxes to build up the trust
fund, don't count. 

Politically, that seems far-fetched. A general fiscal
crisis, on the other hand, is a real possibility - but not
because of Social Security. In fact, the Bush
administration's scaremongering over Social Security is in
large part an effort to distract the public from the real
fiscal danger. 

There are two serious threats to the federal government's
solvency over the next couple of decades. One is the fact
that the general fund has already plunged deeply into
deficit, largely because of President Bush's unprecedented
insistence on cutting taxes in the face of a war. The other
is the rising cost of Medicare and Medicaid. 

As a budget concern, Social Security isn't remotely in the
same league. The long-term cost of the Bush tax cuts is
five times the budget office's estimate of Social
Security's deficit over the next 75 years. The botched
prescription drug bill passed in 2003 does more, all by
itself, to increase the long-run budget deficit than the
projected rise in Social Security expenses. 

That doesn't mean nothing should be done to improve Social
Security's finances. But privatization is a fake solution
to a fake crisis. In future articles on this subject I'll
explain why, and also outline a real plan to strengthen
Social Security.