Selling Snakeoil, Part I

Hyman continues his misstatements about Social Security in a series of commentaries on proposed “solutions” to the imaginary crisis facing the program.

It’s worth noting at the outset that Hyman’s entire project is framed in a disingenuous way. Hyman does not argue in favor of “privatizing” Social Security or even for the merits of “private accounts”—at least not in so many words. Instead, he uses the euphemism “properly restructured” when referring to the ideas he offers, suggesting a mere reorganization of the existing system rather than the wholesale destruction of the current insurance-policy style system for a privatized investment scheme, which is precisely what he is advocating.

As is typical, Hyman is carrying water for the Bush administration’s policies, although he neglects to make this clear, and like the president’s plan, Hyman’s description of the “benefits” of privatization are both factually wrong and intentionally misleading.

Hyman:

Benefit #1 - Social Security would become secure and stable if it were converted
to a true investment fund. It is currently a pay-as-you-go system that is
totally reliant on collecting taxes from today's workers in order to make
payments to yesterday's retirees. It begins deficit spending by 2018 and by 2042
it will no longer be able to meet its obligations.

Fact 1: Hyman’s statement is based on the myth that Social Security is unstable now. It’s not. Social Security can meet its obligations (even with conservative assumptions) until the middle of the century. Using numbers provided by the Social Security Administration and the Congressional Budget Office, Social Security will continue to pay out more benefits in current dollars than retirees are receiving now, according to the Center for Economic and Policy Research. To assure the solvency of Social Security completely, the Bush tax cuts to the top 1% of taxpayers could be rolled back. The money saved would make up the projected shortfall in Social Security and still keep 99% of the Bush tax cuts in place. On the other hand, the Bush privatization scheme would end up phasing out Social Security as we know it, not assuring its survival.

Hyman:

Benefit #2 - An investment fund that actually accumulates wealth would make it
unnecessary for payroll taxes to be raised. FICA, the payroll taxes, has already
been raised seven times since the first tax of two percent was passed in 1937.
FICA taxes today are 15.3% -- 12.4% for Social Security and 2.9% for
Medicare.

Fact 2: Hyman is using a classic scare tactic here. He suggests that without privatization, FICA taxes will increase. What he leaves out is more frightening: the facts show that privatization will cost the average American taxpayer far more. The cost of privatization will explode the deficit. By 2036, under the president’s privatization scheme, the national debt burden for every American (not just taxpayers) will be $32,000. This means higher home mortgages, car loan interest rates, etc. The huge increase in national debt will also slow the economy, leading to unemployment.

Studies also show that the Social Security system runs far more efficiently than any privatization account system. The president’s own commission estimates that the cost of running private accounts will bleed off five cents for every dollar invested. Social Security’s overhead costs are only 0.6 cents—just over one-tenth of the expense of instituting private accounts.

Where will this money come from? Out of taxpayers' pockets.

And those are The Counterpoints.

Hyman Index: 2.38