Quote of note:

False promises. "Anyone who pretends that this problem can be solved without tax increases and benefit cuts is either ignorant or lying," says Peter A. Diamond, institute professor at Massachusetts Institute of Technology and coauthor of Saving Social Security: A Balanced Approach . "That is something that the politicians, for understandable reasons, are all ducking, because the issue is how do you address voters who aren't paying that much attention."

Saving Social Security: A Balanced Approach is a book published by The Brookings Institute. An PDF excerpt is available for download (NOT online viewing, by the way). It's a good read, and can significantly cool the panic being spread over the "bankruptcy" of Social Security:

Social Security’s Long-Term Deficit
Social Security faces a long-term deficit, requiring some type of reform to put the system on a sounder financial footing. According to the most recent projection done by the Office of the Chief Actuary of Social Security, from its current balance of roughly $1.5 trillion, the trust fund is projected to first rise and then fall, reaching zero in 2042. At that time revenue from payroll taxes and the income taxation of benefits would still be sufficient to cover about three-quarters of projected expenditure. That fraction then declines slowly to slightly less than 70 percent in 2080. Thus, although some observers refer to the “bankruptcy” of Social Security, in fact a substantial revenue flow would still be dedicated to Social Security even after the trust fund is exhausted – and concerns that there will be nothing from Social Security for future generations are misplaced. Even so, everyone agrees that a serious political problem arises when the trust fund reaches zero: at that point, the system cannot pay all promised benefits out of the existing revenue structure.

Another description of the financial picture comes from considering an “actuarial balance” figure. This measure reflects the degree to which the current trust fund and projected revenue over some period are sufficient to finance projected costs. The period conventionally chosen is seventy-five years. When the projection shows insufficient resources to pay scheduled benefits over that period, the Office of the Chief Actuary calculates what level of additional resources would be sufficient to close the gap and leave the trust fund with a projected balance (considered a “precautionary balance”) equal to projected expenditure for one additional year after the end of the period. This measure of the actuarial deficit, presented as a percentage of taxable payroll over the next seventy-five years, is the key traditional criterion for evaluating Social Security’s finances. In the 2004 trustees’ report, the actuarial imbalance was 1.89 percent of taxable payroll. One interpretation of this number is that it indicates what payroll tax increase would be sufficient to finance benefits over the seventy-five-year horizon (and leave a precautionary balance as defined above), provided the increase began immediately and remained in force for the full seventy-five years.

We have to have this discussion, but it would be nice if it were based on facts.

And now, the U.S. News and World Reports article that inspired this mini-rant.

Money & Business
By Lou Dobbs
Time to touch the third rail

Federal reserve chairman Alan Greenspan has chosen to up the already considerable stakes in the 2004 presidential election. Greenspan's warning of Social Security's impending fiscal disaster has struck fear among a large number of baby boomer Americans on the verge of retirement.

…No federal government program is more important to the quality of life of our nation's seniors. Without Social Security, half of all seniors would live in poverty. The actual poverty rate for seniors in this country, though, stands at 10.2 percent. And not only the health of our seniors but that of our economy and society depends on successfully resolving the Social Security issue.

Bush has suggested privatizing Social Security, a major part of his vision for an "ownership society," where more Americans own their homes and healthcare, and especially their retirement. But most economists are curious as to where the government would raise the estimated $1 trillion in transition costs necessary to complete the switch. The likely result would still be either a tax hike or benefit reduction, Diamond says. "Individual accounts are put forth as a third option . . . you can have tax increases or benefit cuts or individual accounts--that's a falsehood," he says. "Every plan that's had individual accounts has to increase taxes and cut benefits also."