February 21, 2005

Terrible, Just Terrible

Oy... what is wrong with our media? This Newsweek piece on Sen. Lindsey Graham's (R-SC) secret plan to privatize Social Security is horrible. First, there's this passage, on the merits of wage-indexing:
When the Social Security Administration figures out a new retiree’s initial benefit, it uses a formula based on the real (inflation-adjusted) growth in wages during that worker’s career. First implemented in 1977, this is called wage-indexing and it means that the benefits Social Security has promised to future retirees will be higher in real terms than those paid to today’s retirees — that is, they would be higher if the system could pay full benefits, which as of 2042, it won’t be able to, according to the Social Security Trustees.
Who vetted that last sentence? No. Just... no. Even if nothing is done to fix the system, nothing at all, the program can still afford to pay out benefits that are higher in real terms than they are today, in 2042 and in 2052 and in 2062 and... Price-indexing wouldn't just give us benefits smaller than what's "promised". It would give us all smaller benefits than what's payable. What was Newsweek thinking here? In fairness, the SSA Trustees' Report doesn't list payable benefits anywhere, but the Congressional Budget Office does, and people like Dean Baker have done the relevant calculations. on this. These numbers aren't unknowable.

Anyway, enough huffing and puffing. On to Lindsey Graham. Graham thinks he can pay for his privatization plan by lifting the cap on payroll taxes. Newsweek takes his word for it. But what he's saying is false, according to Furman/Greenstein. The Graham Plan is one of the more sensible privatization schemes out there, but it would still reduce total benefits for everyone, increase deficits through at least 2050, and would require trillions in General Fund transfers to Social Security, worsening the budget deficit. As the CBPP analysis has it, raising the cap on payroll taxes wouldn't "avoid the need for extensive borrowing" here. (And Graham isn't proposing to lift the cap completely, so he'd end up raising even less than the already too-meager amount assumed by the Furman/Greenstein paper.) Plus, Newsweek notes that Alan Greenspan suggested that Graham modify his plan by giving low-income people more in guaranteed benefits. A noble goal, to be sure, but it's going to make the plan more costly. Yum, more borrowing.

At any rate, this stuff is all very complex but the point is that there are people out there actually working through all the complexity. Newsweek's reporters ought to know about this, rather than just nodding dumbly when Graham smiles and tells them he "hasn't worked out exact numbers yet."
-- Brad Plumer 12:10 AM || ||