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The Social Security Promise Not Yet Kept
Tue Mar 2 10:02:10 2004
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http://www.nytimes.com/2004/02/29/weekinreview/29john.html?ex=1078635600&en=831b25bba090ac0d&ei=5062&partner=GOOGLE
The Social Security Promise Not Yet Kept
By DAVID CAY JOHNSTON

Published: February 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.

He said using the surplus to pay routine bills makes sense to those who
believe the government will have tax revenues in the future to repay the
borrowed money.

President Bush asserts that making his existing income, gift and estate
tax cuts permanent will spur growth that will, in turn, generate more
tax revenue in the long run, making that repayment more likely.

Claire Buchan, a White House spokeswoman, said that making the cuts
permanent will "promote prosperity for American workers'' and that older
employees can expect full benefits.

But Mr. Greenspan's new remarks have brought that into question. Other
officials have raised doubts. In June 2001, Paul H. O'Neill, President
Bush's first Treasury secretary, said all that Americans expecting
benefits have is "someone else's promise'' that the paper held by the
Social Security Trust Fund will be redeemed with taxes paid later by
others.

Michael Graetz, a Yale Law School tax professor and tax policy adviser
in the administration of President Bush's father, said it was in the
nature of Washington to spend surplus tax revenues. "Unless they put the
money in a lockbox, which they haven't, the politicians are going to
spend the money," he said, and say they will repay the loans with future
taxes.

Mr. Greenspan said nothing last week about returning to a pay-as-you-go
basis. Doing that would put about $40 a week in the pockets of workers
making $50,000 annually.

Some argue that the surplus taxes are being used to help finance income
tax cuts, which Mr. Bush wants made permanent.

Mr. Greenspan told Congress earlier that Mr. Bush's tax cuts should be
kept in place. The biggest beneficiaries would be the top 400 taxpayers,
whose average income in 2000 was $174 million each. They paid 22.2 cents
on the dollar in federal income taxes and, under the Bush tax cuts,
would have paid about 17.5 cents.

Over all that year, Americans paid 15.3 cents on the dollar of income in
income taxes, but many middle-class Americans paid a larger share of
their incomes to the federal government than the top 400 when both
income and Social Security taxes are counted.

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