Greenspan/Bush: Repudiate the National Debt!

Here’s a headline you didn’t read over the weekend: Chairman of Federal Reserve Board Calls for Repudiating the National Debt.

You didn’t read it, but it happened nonetheless. Alan Greenspan on Friday repeated his mantra that Social Security simply isn’t sustainable through the Baby Boom’s retirement. Speaking at the Fed’s annual soirée in Jackson Hole, Wyoming, Greenspan called for cutting benefits and raising the retirement age.

Most Boomers still don’t know that their retirement has been postponed from 65 to 67. The Maestro – Bob Woodward gave Greenspan that honorific in his fawning biography – now wants to move it to 70.

If the public (or the media) understood government accounting, it would accuse the 78-year-old Greenspan of bait-and-switch. In 1983 the Ayn Rand enthusiast ran a commission that endorsed a hike in Social Security payroll taxes precisely to avoid the bankruptcy he now predicts is inevitable. At the time, the Social Security system had no reserves and its payouts were rising dangerously close to its receipts from the payroll tax.

Sublimating his libertarian instincts to his pragmatic quest for his current position (which he got in 1986), he called for a sharp payroll tax increase, which falls most heavily on wage earners. It worked. Over the next two decades, Social Security racked up nearly $3 trillion in surpluses.

Where did the money go? It helped cover the massive deficits that the Reagan, Bush I and Bush II administrations compiled while financing huge military build-ups and tax breaks, mostly to those already well off. Money owed the Social Security trust fund now accounts for more than 40 percent of the national debt.

This year, like junkies desperate for a fix, the Republican administration and Congress are once again using everyone’s retirement cash to help balance its books. In case you haven’t been paying attention, the government is projected to run a $445 billion budget deficit this year. It’s tough to balance the budget when the administration in power’s concept of sacrifice during wartime is to have the IRS write checks to the richest Americans.

But average Americans’ retirement accounts continue to do their part (there’s a poster – Uncle Sam Wants Your Nest Egg!). The Social Security trust fund’s contribution to the war effort last year came to $162 billion. That’s right, the most recent audit of the supposedly collapsing Social Security system reported that it ran $162 billion in the black last year. In fact, the system isn’t due to run in the red until 2018 and the trust fund isn’t scheduled to exhaust itself (and thus require a tax increase to finance Social Security benefits) until 2042.

None of this matters to Greenspan, of course, whose stalking horse comments helped set the stage for this week’s Republican convention. Part of the president’s moderate makeover will include his touting private accounts for Social Security. Put a 401(k) in every pot. Call it the ownership society.

This is precisely what one would propose if the goal were to bankrupt Social Security, since it would take over one trillion dollars to finance the transition. As Business Week pointed out in its editorial attacking the plan, even at today’s relatively sluggish economic growth rates, there are sufficient reserves in Social Security to pay for the retirement of the boomers and their kids.

So why are Republicans so desperate to restructure the system in such a way as to ensure its demise? In part it’s philosophical. If your goal is to make government so small that you can, in Bush stalwart Grover Norquist’s words, drown it in a bathtub, then the last thing you want around is a successful taxpayer-financed program that has done more to reduce poverty than any other social program in American history.

But the tax issue is also at work. In 2018, the Social Security system will begin running deficits. Each year, it will start paying out more than it collects in taxes. When that happens, the government (its general fund; not its Social Security fund) will have to begin paying off what will by then be in excess of $4 trillion in IOUs. The only way to do that is to raise taxes. And income taxes, even with the regressive tax breaks introduced by this administration, are a heck of a lot fairer than payroll taxes.

Bottom line? It’s simply not possible for the government to pay off its debts without raising taxes on the well off. Not unless, of course, you’re willing to repudiate the national debt to Social Security. And cut benefits. And raise the regressive payroll tax again. Call it the Greenspan plan.

Posted by gooznews at August 29, 2004 10:41 PM