Fact vs Fiction vs Fact

On the 29th of January I mentioned that Republicans would soon be ratcheting up the rhetoric on the Social Security front:

Representative Bill Thomas of California, chairman of the House Ways and Means Committee, discussed redirecting public attention on 2008 as an imminent danger point for the Social Security trust fund because baby boomers will begin retiring, people present said.

From an ABC News article today (my bold):

The chatter surrounding Social Security reform heated up this week as President Bush and the administration began making their case for privatizing the nation's retirement benefits system. With the impending retirement of millions of baby boomers, beginning as early as 2008, the Social Security system faces funding deficits over the next 40 years that could force lawmakers to raise taxes, lower benefits or take money out of the general budget to keep pace with the country's aging population.

And there it is, dropped neatly into the opening graph on an article about sorting out Social Security fact from fiction. If this date continues to pop up in stories like this one, it's going to be hard to keep people from believing it. A Republican talking piece is one thing, but a news report using it is another thing entirely.

Otherwise, it's a fairly poor piece, biased toward the President's side of things (as you could imagine with the 2008 reference). It does, however, point out that a tax hike of less than one percent on workers and business will, in essence, solve Bush's fake "crisis."

But it fumbles on a number of points:

(quoting Bush) "You realize that the system of ours is going to be short — the difference between obligations and money coming in — by about $11 trillion unless we act."

This is the biggest and one of the most controversial numbers the president has been using to make his case. First, some perspective on that number: $11 trillion is the size of the annual GDP of the U.S. economy! What the president is suggesting is that unless Congress acts now, Americans will have to make up a shortfall equal to the entire U.S. economy. It's unlikely this shortfall will ever occur. It's an estimate of the gap between promised benefits and revenues to pay for them if the government does nothing between now and the end of time.

Wow, how misleading! First off, there is no reference to the basis for that number, which would be if Social Security managed to meet only the meager projection set out by the agency forever. It's an infinite projection. If Social Security outlasts the earth and the universe, then we will hit that $11 trillion dollar shortfall.

Secondly, and I wish I had more of an economic background for this one, I'm not sure that the "annual GDP of the U.S. economy" and the "entire U.S. economy" are two different things. I'll report back with a more definitive answer later.

Also when mentioning historic rates of return it fails to mention that most people believe that the stock market will not be able to maintain it's historically strong growth due to it's recent steep rise. Stocks were either undervalued in the past, or they are overvalued now. If the later is true, there is even more risk to the private investing Bush is asking for.

Finally, it makes reference to the "passing down" of accounts. The article correctly points out that in certain instances, accounts are passed on to spouses and children. But, and perhaps this is only me, the whole idea is misleading in the first place. Social Security is already passed down to future generations. What's left over in the trust fund moves forward through the years to the generations that follow.

With allies like these...