"When First We Practice to Deceive"

...Without Social Security, today's rate would be 47 percent...

...We depend on contemporary adults to educate us when we are young, and we depend on contemporary adults to feed and house us when we are old...

...Those who believe that the "savings rate" is a good thing expect that consumers who give up claims on production would otherwise have spent income on less useful forms of production than those to whom they give up these claims—investors who spend others' savings on productive tools...

...If we hold dollar bills and tomorrow try to spend both today's earnings and tomorrow's, we'll only generate inflation, not greater wealth...

...Or other taxes could be raised...

...Should those who care about Social Security and the public sector's long-term vitality play along with these silly games...

...This raises interesting questions about public morality—that liberals knowingly perpetuate mythology because it helps preserve a liberal program...

...As a result, Social Security enjoys the political support not only of seniors but of active workers, who foolishly believe their taxes go for their own retirement, not for today's elderly...

...Comments should be addresssed to rothstei@oxy.edu...

...They attempt 34 DISSENT / Fall 1999 to enhance our ability to make all kinds of expenditures in 2015—not only support of the elderly, but fighter planes, and schools, and operation of parks...

...They are not too low now (in fact, taxes are too high, relative to current spending, which is why we have a budget surplus...

...Plan B—We can make investments that can potentially increase incomes, and thus purchase more elderly support without raising tax rates...

...Should we use budget surpluses to "save Social Security first...

...This trade would not be a tax increase, but how many myths can we tackle at once...

...If, on the other hand, our income increases, we can support more elderly persons for longer lifespans, and we can increase the level of support we provide to them, and at the same time increase the quantity and quality of education we provide for our (fewer) children...

...We even call these IOUs "bonds," although they are strictly an accounting device, not interchangeable with the Treasury bonds you or I could purchase...

...But the crisis is not self-evident...

...Perhaps we will then be forced to cut Social Security as well...

...There are no individual Social Security accounts...

...Indeed, I propose we continue it: we should all support the silly idea that surpluses should be used to "save Social Security first...

...If, for example, we engage in a major war, federal expenditures will increase and current tax rates may be insufficient to pay for everything we want to do—including support of the elderly...

...While an individual's Social Security benefit is related to his or her earnings history, the relation is not directly proportional...

...In fact, however, current "Social Security" taxes go not only for current benefits, but for fighter planes, education, and everything else the government buys...

...But while lower tax rates may be reasonable for now, they will not be so in the long run...

...third, have the Treasury take this "loan" and use it to retire the national debt (pay off private bondholders...

...Need for taxes to support the elderly will increase while need for taxes to support children will decline...

...Borrowing might also make sense if, when 2015 rolled around, we were in the trough of a business cycle and wanted, temporarily, to spend more than tax receipts as a way of boosting employment—but this has nothing to do with Social Security...

...Oh, what a tangled web we weave . . ." RICHARD ROTHSTEIN is a research associate of the Economic Policy Institute...

...We've done so because income has grown...

...Each year, a portion of working Americans' incomes is transferred to senior citizens...

...With this large a surplus utilized to retire debt, the dent in interest payments could total $100 billion a year, which would become available for other purposes...

...THUS, THERE is no way to "save" budget surpluses for tomorrow's Social Security, as savings are understood by most people...

...Improving infrastructure (roads, bridges, airports, train tracks) is another...

...There are only four ways to "save" Social Security when costs rise from higher retiree-to-worker ratios: Plan A—We can reduce other public expenditures to increase how much we spend on Social Security without raising taxes...

...It's no crisis that we've increased spending for this service by about $19.95 per month...

...The elderly are our "Internet," the children the "movies" we no 32 DISSENT / Fall 1999 longer attend...

...It's not clear that bondholders make more productive investments than those required by more consumer spending...

...Whew...

...In this sense, paying down debt is a Plan B solution...

...There is more merit to this claim than many liberals acknowledge...

...We cannot save bread to give it to ourselves or our children or grandchildren, 50 years from now...

...To maintain the mythology, the government maintains a set of phony accounting books, in which IOUs are written from one account to another...

...We could do more...

...If current tax rates are maintained, the situation will be reversed in approximately 2015, because the number of elderly will be greater and they will be living longer...

...Speaking truthfully about this plan may make Republican tax cuts more likely...

...In this event, voters, the president apparently fears, are likely to support Republican demands for big tax cuts that may be difficult to reverse later...

...Social Security is no different conceptually from public education, where a portion of working Americans' incomes is transferred to youths who are not yet working...

...Even with overly conservative estimates of future economic growth, a payroll tax rate increase of 2 percentage points would cover all projected growth in the number and lifespan of the elderly...

...When, for example, "Social Security taxes" are spent to buy missiles, the Treasury writes itself an IOU for Social Security...

...This is only two-thirds of the current rate, which we've achieved with relatively little help in the way of conscious public policy (except for keeping interest rates low...

...Plan D—We can decrease our private consumption in order to spend more public money on the elderly (in other words, we can raise taxes...

...When individuals "save," they're only executing a trade with other individuals: "I will give up a claim on today's production, and let you have it, provided you promise to give up a claim on tomorrow's production, and let me have it...

...So the real issue, really the only issue, is whether we now, or will in the future, collect enough taxes to carry out all the activities we want to undertake—defense, highways, welfare, education, and support of the elderly...

...Social Security is not a retirement program of the "pay as you go" or any other variety, but an income redistribution program...

...Some people say that internal government IOUs must be taken more seriously than dipping into the cookie jar, because private investors who hold Treasury bonds will lose confidence if government defaults on IOUs to itself...

...Paying down debt could also help tomorrow's elderly if government bondholders take their debt payments and invest them productively—building factories, designing software, etc...

...We do not need higher taxes in 2015, but probably could not get by with lower ones...

...To make matters worse, the anticipated surplus is an unreliable estimate, based on expectations of no major recessions, no wars, no bear markets, no unforeseen disasters, and, above all, no spending in excess of budget "caps" adopted in 1997...

...If this helps make us responsible about keeping within our budgets, no harm is done by telling ourselves this story, even if we never put the money back...

...This might make sense if we thought a higher retiree-to-worker ratio was temporary, the result of a demographic cohort bulge that would quickly pass...

...For the president, this is more significant dishonesty than denying he had sex with an intern but, when it comes to Social Security, we're all complicit in the lying...

...Our national "savings rate" does not represent net savings—it only represents the extent to which some individuals are giving up claims on today's production to others...

...We can afford to be agnostic about this question...

...Can we afford it...

...In fact, we'll be in better shape than in the past, because we'll no longer have young and old dependents, children and retirees, growing simultaneously as a ratio of active workers...

...As of this writing (July, 1999), the Republican House and Senate have adopted a plan to spend about one-third of next year's $14 billion budget surplus on tax cuts, an amount that will compound to $800 billion over the next ten years, out of a total anticipated surplus of nearly $3 trillion...

...Fewer children won't entirely offset more elderly (and we spend more per senior than per pupil), but fewer children will help...

...This idea is more smoke and mirrors...

...Clinton's judgment, however, is that if Plan B elements of his proposals get any larger, the public will see through them for what they are—expenditures that have no specific relation to Social Security but rather expand responsibility of the public sector for overall prosperity and well-being...

...If they do this, our income will increase and there will be more revenues in 2015 with which to support retirees, without requiring tax rate hikes...

...Remember, it all goes into the same pot...

...The next thirty years' decrease is tiny compared to that we've already handled, and we've increased benefits at the same time...

...0 NE THING we cannot do is "save" the surplus...

...These Republicans look forward to the day when our public needs (like greater numbers of elderly) increase, and, with lower taxes, we are forced to cut back on other public programs to pay for them...

...Indeed, anticipated surpluses over the next ten years are about equal to the total debt the government owes bondholders (not including government shenanigans in owing money to itself...

...Dollars earned today must be spent today...

...Should we call Clinton's plan what it is—a debt reduction and public spending program—and acknowledge that it's not a "save Social Security" plan at all, except to the extent that it saves government's role generally...

...If our incomes are higher in 2015, we probably can afford it without spending less on anything else—that is, without raising tax rates...

...We can pay down federal debt (in effect, spending the surplus by giving it back to government bondholders who will then spend these funds in the private market...

...Why, then, is President Clinton's proposal to "save Social Security" with surpluses (that is, paying off government bondholders so they'll invest and assuring lower government interest payments in the future) preferable to Republican proposals to use surpluses to stimulate private consumption with tax cuts...

...It may be a better use of the surplus to "return" it (that is, not take it in taxes in the first place) to middleincome taxpayers than to return it to government bondholders...

...But the economy may not benefit if I save part of my paycheck, and my bank then lets another consumer use these savings to run up a credit card bill—which is why the "savings rate" is, shall we say, overrated...

...second, have the Social Security fund turn around to "lend" back about 80 percent of this to the Treasury (investing the rest in the stock market...

...If we adopt Plan A, we would increase federal taxes and reduce state and local ones when demographic trends demanded it...

...If you think this is nothing more than a plan to use current taxes of all kinds to pay down debt, and future taxes of all kinds to pay Social Security benefits, you are right...

...Largely because of Social Security, seniorcitizen poverty has declined from 50 percent in 1935 to 11 percent today...

...In this case, we will either have to raise taxes (for revenue purposes, it doesn't matter which tax we raise) or borrow funds until the special needs are taken care of...

...That we must spend more to support the elderly in 2015 than we do today is not in itself a crisis—we're increasing our consumption of elderly support, taking care of more old people and for longer lives...

...As the late, and great, economist Robert Eisner never tired of reminding us, We can take bread out of one mouth today and give it to another today...

...Clinton's scheme tilts too heavily toward Plan A. Our public investment rate has now fallen so low that it threatens our ability to maintain current growth rates and our ability to increase incomes to the level needed in 2015...

...There are, however, two ways that surpluses can be spent today to help tomorrow's elderly...

...We always increase spending when we want to increase consumption of any good or service...

...To make things easier, we also plan to decrease consumption of education for youth at about the same time...

...Can we afford it...

...While the ratio of seniors to active workers will be higher than today, the ratio of schoolchildren to active workers will be lower...

...To maintain the mythology, we will cancel some IOUs each time this occurs...

...Conventional projections of a Social Security "crisis" assume that future economic growth will be only 1.6 percent a year...

...President Roosevelt was afraid he couldn't get such a plan passed, so he demanded that staff rewrite it so benefits would be paid only out of "Social Security taxes...

...after this point, taxes collected in the name of "Social Security" will be less than we spend to support the elderly, and other taxes will also then go for their support...

...In his initial proposal earlier this year, the simple idea of paying down the debt was converted into a scheme to first give a gift of about $3 trillion (the amount of the long-term budget surplus) from the Treasury to the Social Security fund...

...Plan C—We can increase public borrowing...

...Today, there are only 3.3...

...We handled this "crisis" with strong economic growth, and we could easily do so again...

...Because the number of retirees will grow rapidly after the baby-boom generation begins to retire in 2011, some people have become convinced that Social Security is in "crisis...

...Think of this crutch as similar to a housekeeping gimmick—we may tell ourselves that we're borrowing from the "grocery money" to buy birthday presents...

...For political reasons, an elaborate architecture of smoke and mirrors has been constructed to obfuscate these simple realities...

...THESE PROCEDURES would be no problem unless overall tax rates were too low, relative to all programs for which we want to spend public funds...

...Taxes will not likely be too low in the forseeable future, unless our needs increase more than anticipated...

...The ratio of elderly to active workers has grown steadily since Social Security began...

...In this sense only, arguments over what to do with our surpluses are arguments over the future of Social Security, and that of every other public enterprise...

...Some claim this will do a better job of making the country more productive, because taxpayers will stimulate economic growth with higher expenditures from takehome pay...

...Since 1935, payroll taxes have exceeded what's needed to support the elderly, so the Treasury has been writing many IOUs to itself...

...We've increased tax rates without sacrificing our standard of living in other areas, and these higher rates have a compound effect because they're applied to higher per capita real incomes...

...There may be some merit to this claim, but not much: I'm not less likely to honor my mortgage payment if I fail to replace gift money in the grocery kitty...

...Most of us want to consume more Internet services now than we did ten years ago...

...The reason is political, and it again concerns games we play with ourselves: once tax rates fall, it may be difficult to raise them later, when support of more elderly will require greater spending...

...How much we can do all these things depends on how much our income increases between now and then...

...Because we can't trust ourselves to raise taxes when we need to do so later, we can't permit ourselves to lower them now when we can probably afford it...

...They want to reduce surpluses by cutting taxes...

...REPUBLICANS have a third proposal...

...These public expenditures will increase growth, and thus our incomes in the next century, permitting us to support more elderly for longer, without a tax rate increase...

...Social Security taxes" helped win the Second World War, among other accomplishments...

...That the economy as a whole cannot have net savings should not be confused with the oft-discussed "savings rate...

...The best we can do to make such a transfer is to build an oven that we hope will still be functioning 50 years from now, or train a new baker now who will still be plying his trade then...

...We can afford to support more elderly now than we could sixty years ago, and if our income continues to grow, we will be able to support more later...

...A simple tradeoff is complicated because Social Security is supported by national taxes, whereas education is supported by state and local taxes...

...I N THE architecture of deceit, we label payroll taxes "Social Security," although these funds and other taxes (like income taxes) all go to the Treasury, which mixes its daily take together in one big pot—it's not possible to say which dollars go to support the elderly and which go for defense...

...Increasing the quantity and quality of education is one way...

...36 DISSENT / Fall 1999...

...Alternatives would be to increase the progressivity of payroll taxes by applying them to higher incomes, or to nonwage income...

...No individual can contribute to his or her own Social Security...

...And if not, should we plan to raise taxes (if we expect the shortfall to be permanent) or borrow funds to undertake them...

...Clinton's proposal to use surpluses to "save Social Security first" falls far short of what is desirable, because it is an unbalanced mix of Plan A (reduce future interest payments by paying down the debt) and Plan B (increase future incomes by targeted public investment, including more aid to education and basic research...

...A second way to use surpluses to help tomorrow's elderly is also a Plan B idea—spend it on government programs that will make the country more productive, and thus assure higher incomes in 2015...

...and fourth, have the Treasury use general revenues (future tax receipts) to "pay back" the loan to the Social Security fund when the money was later needed for benefits...

...Should we attack the proposal for its distorted emphasis on Plan A elements at the expense of Plan B? These are moral and political questions, not economic ones...

...For most, the answer is yes: family incomes have increased by more than $19.95 per month, so we can support this increased consumption without sacrifice...

...In 1935, there were sixteen active workers for every elderly beneficiary...

...Republicans want a big tax cut because they want to reduce the size and influence of government...

...We do this because, as a society, we believe that active adults should take responsibility for supporting our elders...

...But at some point, the ridiculous accounting mechanisms we've constructed to dress up Social Security as a retirement, not an expenditure plan, will catch up with us and preclude sensible government spending priorities, even when no tax-cut threat looms...

...We could also properly think of Social Security simply as a current spending program in which we collectively purchase goods and services that seniors need for their support, much as we collectively construct highways or operate an army...

...Informed Americans now understand that Social Security is "pay as you go," but most take this to mean that current payroll taxes provide benefits for current retirees, while tomorrow's payroll taxes will support tomorrow's retirees...

...In contrast to retirement programs in which we typically provide for our own futures according to our own means, active adults transfer disproportionately higher Social Security payments to seniors who, when working, earned lower incomes...

...By the time the youngest of the baby-boom generation retires in 2030, there will be only two...

...These trends are not entirely new...

...As noted, we already expect to decrease how many pupils we support in schools, although we may want to increase the level of support, for example by reducing class sizes...

...A small difference is that, for youth, we transfer income in the form of services—instruction—whereas, for seniors, we transfer income directly and allow them to purchase goods and services they need with these redistributed funds...

...Indeed, increasing public investment by $80 billion a year would only get us back to public investment rates of the 1970s...

...This could help Social Security because paying down debt will reduce interest payments the government otherwise plans to make in the next century...

...Tax cuts, on the other hand, once written into law, are more difficult to reverse...

...Supporting medical research, or basic research in all fields, is another...

...But our society as a whole cannot "save" (we can trade present for future claims on production with other nations, but this complication DISSENT /Fall 1999 • 33 is not germane here...

...At current tax rates, and with anticipated higher incomes (from economic growth), there is no Social Security crisis— there will be adequate funds to support the elderly in future decades...

...As recently as 1965, when we had a baby boom in children and growing numbers of elderly, there were only 1.3 workers per child...

...No active adult's taxes go toward his own support when he becomes elderly, any more than an active adult's taxes go toward his own education when he was young...

...Even if not spent on consumption, it must be "spent" on investment...

...Calling the payroll levy a "Social Security" tax causes great misDISSENT /Fall 1999 31 chief...

...In 1935, those designing the Social Security system provided for general tax revenues to pay benefits...

...There are now two active workers for every dependent child...

...He hopes that spending surpluses to pay down debt and increase public spending will stimulate growth and assure higher incomes in 2015 and beyond, while permitting funds now committed to interest payments to be used instead for other purposes...

...A dollar earned today is only a claim on today's productive resources...

...Clinton has a pretty good track record when it comes to deflecting the most irresponsible of Republican congressional proposals, so his political judgment when it comes to budget surpluses is due some deference...

...Where incomes have not increased, we can choose to spend $19.95 less on something else—perhaps go to fewer movies so we can stay home and play on the Internet...

...Clinton's proposal to use surpluses to "save Social Security first" is nothing more than these two ideas...

...In this sense, paying down debt is a Plan A solution, reducing other government expenditures (that is, interest payments) to make more funds available to support the elderly...

...Instead of proposing to spend more on public investments, Clinton has emphasized Plan A elements of his proposal, presenting them as a Social Security bailout plan with DISSENT /Fall 1999 35 procedures so contorted that even his own administration couldn't explain them...

...there will be 2.3 in 2030...

...But these plans have nothing specifically to do with Social Security...