February 6, 2005
Bankrupt in 2042?In the State of the Union speech, George W. Bush said, "by the year 2042, the entire system would be exhausted and bankrupt".
The Democrats loudly groaned in protest and rightly so. The statement is downright false. The program will never go bust", said David Walker, the nation's chief accountant and head of the nonpartisan Government Accountability Office (GAO).
Mr. Bush used the word "bankrupt" because he knows it alarms us. When we hear the word "bankrupt", we think that Social Security is penniless and won't be able to pay benefits.
Nonsense. At that point in time, if no changes are made to the system, Social Security will still be taking in enough taxes to pay roughly 75-80% of scheduled benefits. Even at that reduced rate, the amount retirees will get is still higher in current dollar terms than what retirees are getting now.
The year 2042 by the Social Security Trustees is also debatable [the Congressional Budget Office prediction is 2052]. When the Social Security Trustees make projections into the future, they actually make three of them: pessimistic, intermediate and optimistic. 2042 is the intermediate projection. Under the optimistic projection, Social Security will remain solvent indefinitely even without changes.
According to the NYT Magazine, the optimistic prediction has turned out to be the most accurate:
Furthermore, the Social Security Trustees assume in their projections that the economy will grow at half the rate it's growing now. The champions of privatization are presenting assumed returns from private accounts of 6.5% after inflation, which is impossible if the economy is only going to grow at half its current rate.
My question is, how come the most pessimistic predictions are used to portray Social Security's performance while the most optimistic predictions are tauted to portray the performance of private accounts? It's simple. They're stacking the deck to make sure Mr. Bush's plan appears more palatable than it really is.
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Wonky Muse is the other Filipino American female political blogger. The sane, liberal one.
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