HAPPY DAYS ARE HERE AGAIN?
DON'T KID YOURSELF
John McCarron, Chicago Tribune
January 25, 1999
Thank goodness the Social Security crisis is
over.
Just when things were starting to look bad,
just when I was about to tell my kids they'll
have to work two jobs so mom and I can
keep cashing our checks, up steps William
Jefferson "Flexi-Bill" Clinton with the
welcome news.
It was enough to make any right-thinking
citizen--even somebody like televangelist Pat
Robertson--forget about Monica
What's-her-name.
It seems that before delivering his State of
the Union address last week, the president
consulted with his Office of Management
and Budget. It turns out there will be plenty
of money to go around after all. What a
relief. Over the next 15 years, the White
House predicts, the government will collect
$4.4 trillion more in taxes than it will need for
existing programs, including Social Security.
That's trillion with a "t," or almost as much as
the entire current national debt.
Clinton wants to plow more than half of this
bonanza, some $2.7 trillion, into the Social
Security trust fund. And a quarter of that
deposit will be invested not in boring old
Treasury bonds, but in our go-go stock
market--perhaps through broad-based index
funds. This should earn enough to keep
Social Security solvent until the year 2055, by
which time most of us boomers will be dead
and gone. Crisis averted.
And that's not all, folks. No, that's not all.
So large will be these future budget surpluses
that there will be $700 billion left over to
shore up Medicare. The big health insurance
plan for seniors is about to go into the red
(some say trillions in the red) despite the big
squeeze the government is putting on
doctors, hospitals and HMOs. Only now, if
we play our cards right, Clinton says, we'll
even be able to let early retirees "buy in" to
the program and, for the first time, cover
prescription drugs. Pass the Viagra.
Then Clinton let fly with the really good
news.
Even after saving Social Security and
Medicare, there will be enough surplus left to
help folks set up a new kind of "USA"
tax-advantaged retirement account to which
the government will make matching deposits
like private employers now do to their
workers' 401(k) plans.
And even after doing that, there will be a
half trillion or so left to fund new defense
and domestic programs, as needed, and to
repeal unpopular rules like the one that cuts
back Social Security payments to oldsters
who keep working.
I know, it all sounds too good to be true.
That's because it is too good to be true.
The White House has been coy about the
economic assumptions underlying its
prediction of a $4.4 trillion, 15-year budget
surplus. But my strong suspicion is that the
boys at OMB cooked the books, or at least
sauteed them a little, by assuming the U.S.
economy and Wall Street's financial markets
will continue the bender they've been on
since 1991. They will not, of course. This has
been a great ride, but the economic
cycle--the periodic oscillation between
recession and expansion--has not been
repealed.
Things look rosy now because
unemployment is below 5 percent and record
numbers of workers are contributing to
Social Security and Medicare. Things look
rosy now because the stock market is
nearing the end of the greatest bull run of all
time, prompting investors to take profits and
pay billions in capital gains taxes. The
blue-chip Dow Jones Industrial Average is
approaching 10,000 and booming technology
stocks have set the Nasdaq exchange on
fire. Will this go on forever? Is Amazon.com
really worth more than Sears, Roebuck and
Co.? I don't think so. At least not until the
red-hot Internet retailer earns its first dollar.
No, my fellow Americans, the stock market
is not going to save Social Security. Not if
the government invests the money; not if the
government lets you invest the money. The
hard fact is that well before the year 2030,
when there will be only 2.2 taxpaying
workers for every boomer retiree, something
will have to give. Take your pick: higher
payroll taxes, lower benefits, older eligibility
or some combination of the above.
As for Medicare, the situation is worse. If
nothing is done, system administrators predict
the Part A (hospitalization) trust fund will slip
into insolvency next year and free-fall to an
unthinkable $12 trillion deficit by 2030.
Tripling the Medicare payroll tax wouldn't be
enough to keep up . . . even if our kids would
stand for it, which they won't. So get ready
for higher deductibles, higher co-pays and, if
you're in an HMO, rationing by another
name. Forget that State-of-the-Union
pharmaceutical benefit.
Don't get me wrong. Eight glorious years of
economic expansion with low inflation and a
rip-roaring run on Wall Street will help us
solve the problems ahead. It is better to
begin the task with this year's $70 billion
surplus than with the $200 billion deficit we
were running just a few years ago.
We cannot, however, expect straight-line
economic growth and parabolic stock
appreciation to do the work for us. It's simply
not going to happen. In truth, there is no
budget surplus. Not really. Not until we
figure out, honestly, how to meet future
obligations without crucifying our children.
So the next time President Clinton says he
wants to match the savings in your USA
account, or when Republicans say they want
to cut your income taxes by 10 percent, just
say "No thanks."
It will be all we can do to cash any
retirement check and keep the kids from
hating us.
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