[Paleopsych] Kerrey on Social Security
Lynn D. Johnson, Ph.D.
ljohnson at solution-consulting.com
Tue Feb 1 13:59:41 UTC 2005
No, not John Kerry, the smart Kerrey.
Pride and Prejudice
"Hell no, we won't go" is the wrong liberal approach on Social Security
BY BOB KERREY
Tuesday, February 1, 2005 12:01 a.m. EST
The late Pat Moynihan used to joke when I asked him why liberals were so
reluctant to consider changing Social Security so that it guaranteed
wealth as well as income: "It's because they worry that wealth will turn
Democrats into Republicans." Leaving aside that possible correlation, it
will be a shame if liberal voices, values and ideas are not brought into
the debate initiated by President Bush's Social Security reform
proposal. To make certain the reforms are done correctly liberal
thinking is urgently needed.
There is no doubt that Social Security and Medicare are two of
liberalism's most enduring and popular triumphs. And there is no doubt
that a vocal and influential minority remains true to its strong
conservative belief that the Social Security Act of 1935 and the 1965
amendments to this act, which created Medicare and Medicaid, represent
socialistic and dangerous interferences with the marketplace. However,
liberals are wrong to fear that President Bush's proposal represents a
threat to Social Security.
I sincerely hope they do not merely defend their proudest achievement. I
hope they see that President Bush is giving them an opportunity to
finally do something about the rich getting richer and the poor getting
First of all, fears that Social Security will be destroyed are
exaggerated. Across all generations and within both major parties,
Social Security and Medicare are seen as a vital part of American life.
They represent a powerful intergenerational contract between younger
Americans in the work force who agree to be taxed on behalf of older,
eligible Americans. What makes the contract work is that the expectation
of those in the work force is that when they pass the age of
eligibility, successive generations of workers will not object to the
taxes that must be imposed on them to cover the costs of their income
and health benefits.
Secondly, President Bush's fears of a bankrupt Social Security and his
rhetoric of the program being in financial crisis are also exaggerated.
Relatively small changes in taxes and/or benefits would restore the
promise to all living beneficiaries--those eligible today and those
eligible in the future. Unlike the situation that existed in 1983, when
Congress and the president acted to avoid a financial crisis, today's
financial problems are relatively small.
On the other hand, there are two problems with Social Security that are
serious enough to be called a crisis. The first is that in eight years
the income from a 12.4% payroll tax will be insufficient to pay the old
age, survivor and disability benefits owed at that time. From that point
on, Social Security will begin to redeem some of the hundreds of
billions of dollars of Treasury bonds it has "accumulated in the trust
fund" in order to issue monthly checks to beneficiaries.
Though these bonds are far from "worthless," as some critics allege, the
picture of them "accumulating in a trust fund" is not accurate either.
That is because, in order to convert these bonds into cash, the U.S.
Treasury will use the cash from individual and corporate income taxes.
While some income taxes are currently used to pay Social Security
benefits, the dollar amounts do not pose a serious budgetary challenge.
In eight years that will change. Coupled with the cost of Medicare and
Medicaid, the annual benefit demands of Social Security will put real
pressure on Congress to cut spending on defense and nondefense
It is at this point in time that the demographic and monetary demands of
the baby boom generation will become painfully apparent. The
disinvestment in public infrastructure caused by the growth in Medicare
and Medicaid will become even worse than it is today. And the nature of
this crisis will be considerably more daunting than that faced squarely
by Congress and the president in 1983. Liberals, who have silently
watched the share of state and federal spending apportioned to the
elderly grow at the expense of education, training, child care and
research, will be appalled to discover how much their silence has cost them.
The second crisis is the one for which liberals are even more urgently
needed. This crisis is the shockingly low rates of savings and pitifully
inadequate amount of preparation being made by American households for
their old age. If liberals were to join this debate and insist upon
provisions that would lead to dramatic reductions of the numbers of poor
elderly, the outcome could be a dramatically enhanced quality of life
for all, reduced dependency upon welfare in old age, and downward
pressure on the social costs of growing old.
If liberals joined this debate they would insist that the guaranteed
transfer payment of Social Security remain intact. With the evidence
that trade, technology and immigration are putting downward pressure on
unskilled wages, they might even be able to succeed in changing the
current benefit formula so that more than 50% of the first $900 of
income was replaced. Perhaps they could even convince their Republican
colleagues to eliminate penalties that affect stay-at-home women.
Liberals would fight to make certain that contributions to private
accounts were progressive in order to benefit lower-wage workers. They
might even argue that accounts be opened at birth, thus giving Americans
the longest possible time to accumulate wealth. No doubt they would
insist that investment options be carefully regulated to keep
administrative costs and risks as low as possible. And since liberals
oftentimes understand the good that markets can do even more than some
of their conservative colleagues, they could see the wisdom of changing
the tax code so that no income taxes were levied on income that went
into these savings accounts. All of these would practically guarantee a
muscular market response that would give future Americans larger amounts
of insured non-employment income to add to the $800 per month on average
they receive from Social Security.
None of this will happen if liberals merely shout "hell no, we won't
go." The best they can hope for with that strategy is to prevent reform
from happening. They should feel no pride of accomplishment if that is
Mr. Kerrey, a Democratic former senator from Nebraska, is the president
of New School University, in New York City.
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