Vice President Al Gore has certainly told some whoppers during this presidential campaign, but his recent claims about Social Security may be the most fanciful of all. In television ads and speeches, Gore is claiming that Gov. George W. Bush’s proposal partly to privatize Social Security would drain $ 1 trillion from the program, throwing it into bankruptcy and presumably leaving grandma to eat dog food. That is not even close to the truth.
Under Bush’s proposal, workers would be able to divert approximately one‐sixth of their Social Security taxes to individually owned, privately invested accounts. That would reduce Social Security revenue by $ 1 trillion over the next 10 years. Social Security, however, is currently running a surplus. Over the next 10 years workers will pay into the system approximately $ 1 trillion more than is needed to pay benefits to current retirees.
That surplus is not used to pay current benefits. Nor is it saved to pay future benefits. Rather, it is used to purchase bonds for the Social Security Trust Fund. The revenue raised from those bonds becomes general government revenue and is used to finance the general operating expenses of the federal government.
Now, Al Gore has proposed using the revenue from the bonds to pay down the national debt. That may or may not be a good use of the money, but it has absolutely nothing to do with Social Security. The same bonds will be in the Trust Fund no matter what the money is used for , to pay down debt, to finance tax cuts, or to fuel spending for new government programs.
And what of those bonds? They are, in effect, simply a form of IOU.
They are a promise that at some day in the future, when Social Security begins running a deficit, the government will somehow redeem the bonds and pay Social Security benefits. As President 1 Clinton’s own 1999 budget put it, “balances are available to finance future benefit payments …
but only in a bookkeeping sense.… They do not consist of real economic assets that can be drawn down in the future to fund benefits.
Instead, they are claims on the Treasury that when redeemed will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government’s ability to pay benefits.”
If, under Bush’s plan, workers divert the excess payroll taxes to individual accounts, it means that the surplus funds will not be available to pay down the debt or for other government spending. But it will have no impact on Social Security. Under current law, in 2015 Social Security will begin to run a deficit. To continue paying benefits, the government will have to tap general tax revenues to redeem the bonds.
Under the Bush proposal, in 2015 the government will have to tap general tax revenues by an identical amount to continue paying benefits.
Bush merely does away with the paperwork transaction of government bonds.
What about Gore’s proposal? It does nothing, absolutely nothing , to change the structure of Social Security. Instead he credits the Trust Fund with interest savings that would come from paying down the national debt. In other words, he would put more IOUs in the Trust Fund.
This enables him to say that he extends the life of the Trust Fund until 2054. In reality, it does nothing at all. In 2015, Social Security will still run a deficit and will still have to tap general revenues to pay benefits. And since Gore would not make any structural changes to the program, there will be no choice but to increase taxes. Of course, since this would fall sometime during Joe Lieberman’s second term, maybe Gore isn’t worried about socking American workers with what would be one of the largest tax increases in history.
The Congressional Budget Office looked at the key elements of Gore’s proposal and concluded, “merely changing the bookkeeping for the Social Security Trust Funds may only make us feel better at the expense of our kids.“The General Accounting Office agreed, stating that 1 Gore’s proposal“does not represent a Social Security reform plan and does not come close to ‘saving Social Security.”
Sounds like one of the candidate’s Social Security proposals is suffering from a bad case of fuzzy math.