The prolonged economic downturn is making most everyone painfully aware of the danger of using the financial market to build up pension savings. Two of the three legs of the legendary pension stool that are steeped in the market employer retirement plans and personal saving plans are now most shaky. Fortunately, a sensible solution is available that entails little fuss and bother, namely, expansion of the solid third leg, Social Security.
That program has worked like a charm and is regarded with great affection by the public. However, it has been maligned for so long that even President Barack Obama believes it has a problem. He has asserted the need for a bipartisan solution to ensure the long-term solvency. This belief has come to be widely held; but it is my belief, formed after much research into the actuarial basis of Social Security, that it is a sly fiction concocted by conservative think tanks starting in the early 1980s, the purpose being to turn the public away from Social Security in order to sell privatization as a replacement.
The state of Social Securitys solvency is therefore so important an issue that I will recap some of my findings bearing on why I do not agree there is a problem.
In a highly aggressive move, the Reagan administration tried to sharply cut back Social Securitys early retirement benefits. Congress in the 1983 raised the Social Security retirement age to 67, following the conclusion of the Greenspan Commission.
The onslaught on Social Security then continued in more subtle ways. The Reagan administration developed what the evidence suggests was a cautious, long-term and surreptitious tactic to make the programs financial future look bleak. This is how it proceeded.
Social Securitys politically appointed trustees none an actuary and most conservative set the actuarial assumptions used for making the long-term (75-year) cost projections. This effectively empowers them to decide (not Social Securitys actuaries) whether there is a long-term deficit (or surplus) each year.
The deficit, as calculated by the Social Security administration, is a 75-year projection of the difference between the present value of all future benefits and the sum of current assets and the present value of all future income. This difference is then divided by the present value of future taxable wages to get the deficit expressed as a percentage of future taxable wages. For example, a 2% deficit means the contribution rate would have to be raised 1% for each worker and employer.
The deficit gradually rose perhaps not surprisingly from zero in 1983 to a high of 2.23% in 1997. And as it rose, so did the clamor by conservatives, in a powerful propaganda campaign, that the program was going bankrupt and needed to be privatized.