What Greenspan Forgot to Mention When He Talked About Cutting Social Security Benefits
David Cay Johnston, in the NYT (Feb. 29, 2004):
Social Security retirement benefits are going to have to be cut, Alan Greenspan announced last week, because there just is not enough money to pay the promised benefits. President Bush said those already retired or"near retirement age'' should not worry. They will get their promised benefits.
That, in short form, was the story carried on front pages and television news programs across the country.
But there is an element that was forgotten in the rush of news. It dates back 21 years to the events that catapulted Mr. Greenspan into national prominence and led to his becoming chairman of the Federal Reserve.
Since 1983, American workers have been paying more into Social Security than it has paid out in benefits, about $1.8 trillion more so far. This year Americans will pay about 50 percent more in Social Security taxes than the government will pay out in benefits.
Those taxes were imposed at the urging of Mr. Greenspan, who was chairman of a bipartisan commission that in 1983 said that one way to make sure Social Security remains solvent once the baby boomers reached retirement age was to tax them in advance.
On Mr. Greenspan's recommendation Social Security was converted from a pay-as-you-go system to one in which taxes are collected in advance. After Congress adopted the plan, Mr. Greenspan rose to become chairman of the Federal Reserve.
This year someone making $50,000 will pay $6,200 in Social Security taxes, half deducted from their paycheck and half paid by their employer. That total is about $2,000 more than the government needs in order to pay benefits to retirees, widows, orphans and the disabled, government budget documents show.
So what has happened to that $1.8 trillion?
The advance payments have all been spent.
Congress did not lock away the Social Security surplus, as many Americans believe. Instead, it borrowed the surplus, replacing the cash with Treasury notes, and spent the loan proceeds paying the ordinary expenses of running the federal government.
Only twice, in 1999 and 2000, did Congress balance the federal budget without borrowing from the surplus.
Both parties have treated the surplus Social Security taxes as" cash flow to the government," which has been allowable since the Johnson administration started counting Social Security as part of the federal budget, not as a separate budget, said C. Eugene Steuerle, a tax policy advisor to President Reagan.
He said that voters were promised in 1983 that the federal debt would be paid off with the surplus Social Security taxes. The fact that this has not happened and the debt has soared shows that"government usually can only deal with one objective at a time,'' Mr. Steuerle said. Back then, he added, the prime objective was to settle on a Social Security tax rate that would back the system and not have to be tinkered with for decades - not how the surplus would be handled.
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