RE: Rep. Thurman and the President's proposal

[Reed Davis <rdavis2@ix.netcom.com>]

Rep. Karen L. Thurman wrote:
>
> Current budget predictions suggest that, absent a plan, Social Security
> will be solvent until 2034. The Administration has submitted a plan to
> Congress which would strengthen Social Security by putting 77 percent
> of the surplus over the next 15 years into the Social Security and
> Medicare Trust Funds. According to preliminary analyses, this would
> ensure solvency until approximately 2059.  We have a ways to go to
> ensure longer-term solvency, but we know this proposal would not hurt
> working Americans.
>
On the contrary, Clinton's proposal could very well hurt future working
Americans.  Its main component is a gift of $2.7 trillion in government
bonds to Social Security.  These bonds will have to be redeemed by future
working Americans, starting in about 2034.  This $2.7 trillion is very
nearly equal to that part of the surplus which is projected to come from
Social Security to start with.  Given that, following are the steps of
Clinton's proposal.  Following each step is the resulting change in the
debt owed to Social Security and the change in the debt owed to the public
(in trillions of dollars):

                                      change in:  Soc Sec  Public
                                                     Debt    Debt
                                                   ------  ------
1) Soc Sec invests $2.7 trillion in gov't bonds....  +2.7       0
2) Gov't gives $2.7 trillion back to Soc Sec.......     0       0
3) Soc Sec invests $0.7 trillion in market.........     0       0
4) Soc Sec invests $2.0 trillion in gov't bonds....  +2.0       0
5) Gov't uses $2.0 trillion to pay down public debt     0    -2.0
                                                   ------  ------
                                            TOTAL:   +4.7    -2.0

Clinton's proposal (steps 1 to 5) will cause the debt to Social Security
to increase $4.7 trillion and the public debt to decrease $2 trillion.
Paying down the debt while still investing in the market (steps 3 to 5)
will cause the debt to Social Security to increase $2 trillion and the
public debt to decrease the same $2 trillion.  Hence, the only difference
between these two proposals is that Clinton proposes to make a commitment
to Social Security of $2.7 trillion in future general revenues.

Under current law, the surplus will simply be used to pay down the public
debt.  This will cause the debt to Social Security to increase $2.7 trillion
and the public debt to decrease $2.7 trillion.  Hence, the $2.7 trillion
gift to Social Security is actually paid for with $2 trillion of additional
debt to Social Security and $0.7 trillion of additional public debt.  This
basic formula is verified by Clinton's own numbers from the most recent
budget.  They can be seen at http://people.delphi.com/rd100/ssreform.html .

In summary, the 25 years of solvency bought by Clinton's proposal is paid
for chiefly with debt, debt that will have to be repaid by future taxpayers.
I would like to know to what degree Representative Thurman and/or the other
panelists agree with this statement.  In addition, I would like to know what
gives us the right to effectively set tax policy 35 years in the future?

Reed Davis