Social Security is a social safety net program that was designed to prevent poverty among American seniors. The big misconception about social security is that it is a government managed retirement account, i.e. you pay in all your working life and draw benefits from that purse, like an IRA. This is not true. Today’s benefits to today’s seniors are paid by today’s payroll taxes. It is widely accepted that Social Security has been very successful in reducing poverty among the elderly.

Thus social security is in fact an intergenerational transfer of wealth. Our payroll taxes support today’s seniors, as tomorrow’s payroll taxes will support us. This is fair game for debate. So is means-testing Social Security - since benefits are not completely based on what you’ve paid in, should rich people get less? Unfortunately none of these factors are the basis for the current debate.

Politically, Social Security has also been an unprecedented success. It is one of the most popular government programs ever, especially among seniors who vote in much higher numbers than, say, students and twenty-somethings. It has been a major staple of the New Deal social compact and coalition. Tampering with it has been long considered the “third rail” of American politics, a third rail that has been much more harmful to Republicans than Democrats. Correspondingly, the Democrats have reaped a much greater slice of the political benefits of social security. If you look at it this way, you could see why Bush and Rove would want to “save” it.

Does Social Security face an imminent crisis? Probably not. It will run into problems when the baby-boom generation retires. The ratio of workers paying in to retirees drawing benefits will be much smaller and the Social Security trust fund will run into problems. However, this will not happen until something like 2042.

Paul Krugman had this to say on the subject:

Here’s the truth: by law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.

When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

The real problem is that the administration is going to destroy Social Security in order it to save it. Privatization will wreak havoc on the program’s financing by drawing today’s money away from paying today’s checks. The government will therefore run up trillions of dollars in new debt meeting near term commitments. Add that to the Bush deficits (cutting taxes while waging war) and you’ve got a real mess.

Of course, trillions of dollars of new debt aside, economic flat-earthers argue that (what else) the panacea of the free market will fix everything and cure all ills, as the fantastic pie in the sky future gains from investing private accounts in the stock market will cause such increased returns as to make everything peachy. Not to mention the windfall for Wall Street.

Surely the political black belts on the Rove team are aware of the potential pitfalls of all of this, in the near wake of Enron, MCI, etc. So keep an eye out for some high level, highly visible prosecutions and settlements as this thing heats up, e.g. the MCI and Enron current settlements where for the first time ever, board members paid investors out of their own pockets. The story line will have the Bush team policing the markets and taking a strong stand to make them safe for a portion of your social security check.

This week saw leaks concerning the administration’s debates about the percentage of payroll taxes that would be allowed to go into private accounts and the amount of guaranteed benefits that would be cut by tying benefit increases to consumer price indexes, as opposed to the current tie in to wage increases, which have traditionally been higher. (Predicate that stat on declining national savings rates and you’ve got a real national pathology to ponder, but we’ll save that for a future piece.) The New York Times reported (a piece of political ‘inside baseball’ so juicy that ABC New’s “The Note” was drooling over it) on an internal Administration email to that effect:

In an e-mail message this week that circulated among conservative activists, Peter Wehner, a top aide to Karl Rove, Mr. Bush’s senior adviser and political strategist, made clear that the White House was leaning toward a reduction in scheduled benefits, partly because failing to do so would unsettle the financial markets and risk harm to the economy.

“You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits, therefore making no effort to address this fundamental structural problem,” Mr. Wehner said in the message. “In my judgment, that’s a bad idea. We simply cannot solve the Social Security problem with personal retirement accounts alone.”

There are much more severe fiscal problems facing our country, like our insane levels of national debt, and the impending Medicare/Medicaid crisis. The proposed Bush privatization of Social Security will greatly exacerbate these problems by adding trillions of dollars to the national debt.