[Congressional Record Volume 148, Number 24 (Thursday, March 7, 2002)]
[Extensions of Remarks]
[Page E297]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         BREAKING THE CONTRACT

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                           HON. STEVE ISRAEL

                              of new york

                    in the house of representatives

                        Thursday, March 7, 2002

  Mr. ISRAEL Mr. Speaker, here is an article that I would like to 
submit for the Record.

                [From the New York Times, Mar. 5, 2002]

                         Breaking the Contract

                           (By Paul Krugman)

       If converting Social Security to a system of private 
     retirement accounts is such a good idea, why can't advocates 
     of that conversion try, just once, to make their case without 
     insisting that 1 + 1 = 4?
       Last week George W. Bush did it again, contrasting Social 
     Security benefits with what retiring workers would have if 
     they had invested all that Social Security taxes in the stock 
     market instead. As an article in The Times pointed out, this 
     was a misleading scenario even on its own terms, financial 
     planners strongly advise against investing solely in stocks, 
     and diversified retirement account wouldn't have risen nearly 
     as much in the 1990's bull market.
       But there's something much more serious wrong with Mr. 
     Bush's story. Indeed, the latest remarks perfectly illustrate 
     how he uses bogus comparisons to make private accounts sound 
     like a much better idea than they really are. For by 
     emphasizing what today's 65-year-olds could have done if they 
     hadn't paid Social Security taxes. Mr. Bush has forgotten 
     something rather important. Without those taxes, who would 
     have paid for their parents' benefits?
       The point is that when touring its plan to privatize Social 
     Security, the Bush administration conveniently fails to 
     mention the system's existing obligations, the debt it owes 
     to older Americans. As with so many other administration 
     proposals, private accounts are being sold with deceptive 
     advertising.
       The truth--which Mr. Bush's economists understand perfectly 
     well--is that Social Security has never been run like a 
     simple pension fund. It's really a social contact: each 
     generation pays taxes that support the previous generation's 
     retirement, and expects to receive the same treatment from 
     the next generation.
       You may believe that Franklin Roosevelt should never have 
     created this system in the first place. I disagree, but in 
     any case Social Security exists, and older Americans have 
     upheld their end of the bargain. In particular, baby boomers 
     have spent their working years paying quite high payroll 
     taxes, which were used mainly to support their elders, and 
     only secondarily to help Social Security build up a financial 
     reserve. And they expect to be supported in their turn.
       Mr. Bush proposes to allow younger workers to place their 
     payroll taxes in private accounts--in effect, to break this 
     ongoing contract. But then what happens to older workers, who 
     have already paid their dues?
       There are only two possibilities. One is default: make room 
     for the trillions diverted into private accounts by slashing 
     the baby boomers' benefits. The other is to buy the baby 
     boomers out--that is, to use money from other sources to 
     replace the diverted funds.
       Those really are the only alternatives. Last year the 
     special commission on reform of Social Security, which was 
     charged with producing a plan for private accounts, came to 
     an ignominious end--it issued a deliberately confusing 
     report, then slunk quietly out of town. But wade through its 
     menu of options, and you'll find that in the end the 
     commission grudgingly rediscovered the obvious: Private 
     accounts won't ``save'' Social Security. On the contrary, 
     they will create a financing crisis, requiring sharp benefit 
     cuts, large infusions of money from unspecified outside 
     sources, or both.
       But nervous Republican members of Congress want to send all 
     Social Security recipients a letter (at government expense, 
     of course) assuring them that their benefits will never be 
     cut. And now that the magic budget surplus has turned back 
     into a pumpkin, the government is in no position to infuse 
     new money into Social Security--on the contrary, the 
     government at large is now borrowing from Social security at 
     a furious pace.
       So why is the Bush administration reviving its push for 
     private accounts right now? Did it really learn nothing from 
     the implosion of the reform commission? I doubt it; the 
     administration's economists aren't fools, though loyalty 
     often requires that they pretend otherwise.
       A more likely interpretation is that this is entirely 
     cynical. War frenzy is subsiding, the Bush domestic agenda is 
     stalled, and early indications for the November election 
     aren't as good as Karl Rove expected. So it's fantasy time: 
     tantalize the public with visions of sugarplums, then blame 
     Democrats for snatching the goodies away. And it doesn't 
     matter that the numbers don't add up, because the plan will 
     never be tested by reality.

     

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