On the January 11 broadcast of ABC's Good Morning America, senior national correspondent Claire Shipman promised viewers that the show would “cut through some of the political rhetoric” regarding Social Security “and look at the reality of what it might mean.” Instead, viewers were presented with a one-sided and highly misleading report about the future of Social Security and the possible impact of privatization on future retiree benefits.
Shipman began by introducing a couple, Bill and Vicki Wilson, who she said both worked outside the home and who would be retiring in 20 years. Asserting that the political rhetoric on Social Security was “white noise” for them and “most Americans,” she brought out Michael Tanner, director of health and welfare studies at the Cato Institute, an organization that Shipman acknowledged “advocates some privatization of the system.” Shipman and Good Morning America provided no other perspective.
Tanner and Shipman proceeded to inform viewers that under current law, upon their retirement, Bill and Vicki Wilson could expect to receive monthly Social Security retirement benefits of $2,257 and $2,232 respectively. Then the following exchange between Tanner and Shipman took place:
SHIPMAN: That's what they're promised.
TANNER: Ah, that's the catch.
SHIPMAN: One thing everyone agrees on -- the Social Security system as it exists now won't be able to afford those payments for long after the Wilsons retire.
But under current law and the most recent projections by the Social Security trustees, promised benefits are expected to be fully payable until 2042 -- 17 years past the Wilsons's projected retirement date. (The nonpartisan Congressional Budget Office extends this even further, predicting that benefits will be fully payable until 2052.)
Later, Shipman stated:
SHIPMAN: Can reform help? Benefit cuts would. And one the White House is considering could make the system solvent eventually. But it would slice a few hundred dollars off the Wilson's payments when they retire. And President Bush would like to add another bold, controversial step: private investment accounts.
What exactly would “benefit cuts” help? Retaining benefits at promised levels? Under current projections and if the law remains unchanged, benefits are fully payable until 2042, at which point “tax income would cover 73 percent of costs,” according to an estimate in the 2004 Report of the Board of Trustees of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
Regarding these private accounts, Tanner responded: “And that the return you get on that would be enough to bring you back up above what you otherwise would get.”
At this point in the broadcast, it becomes impossible to know where the numbers being presented are coming from. The Bush administration, while expressing support for private accounts in general, has so far refused to go on the record with any details about such a plan -- something Shipman should have made clear to viewers, along with the details and source of whatever hypothetical plan upon which they were basing their comments. What Shipman did say was:
SHIPMAN: Assuming only a small investment in a private account and a modest return, Bill would get $1,952 a month and Vicki $1,881. It's a bit more than they would get with simple benefit cuts.
Here, Shipman presented “simple benefit cuts” with or without private accounts as the only possible options. In fact, benefits could be fully paid as promised under current law with various combinations of modest payroll tax rate changes, adjustments to the income cap on eligible taxable income, increases in the retirement age, reductions in benefits paid to early retirees, or simple financing of the program using general revenue. No matter what the merits of any of these ideas, they are all potential options for Social Security reform that are likely to be discussed by members of Congress and that do not involve the type of benefit cuts floated by the administration.
In addition, Shipman failed to inform viewers exactly what rate of “modest return” is being used for these calculations. But Tanner has stated in an October 2003 Cato Institute article that 6.5 percent average annual returns are “well within the range of reasonable financial estimates” and “may even be low by historical standards.” As Media Matters for America previously pointed out, while these may be in line with historical standards, they are too optimistic given the pessimistic assumptions about economic growth made by the trustees in their projections regarding the solvency of the system. Also, “average” means that some Social Security recipients would earn more than that interest rate, but the rest would earn less, some substantially less, given the inherent risk in investing in the stock market.
While it was mentioned in the broadcast that “Vicki is worried about the $2 or more trillion” in estimated costs over the next decade of transitioning to private accounts of the sort envisioned by the Bush administration, Princeton University economist and New York Times columnist Paul Krugman pointed out the following in his January 11 column:
Privatization would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt.
The Cato Institute was founded in 1977 by Edward H. Crane. Its stated mission is to “to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace. Toward that goal, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in questions of policy and the proper role of government.” It has advocated the privatization of Social Security for years, though it recently renamed its initiative the “Project on Social Security Choice.” Cato's sponsors include the Castle Rock Foundation, the Sarah Scaife Foundation, and the John M. Olin Foundation, Inc.