politics

Let’s See – Is it $7, or Is It $90?

February 18, 2005

Two weeks ago, right around the State of the Union address, CJR Daily questioned the Bush administration’s estimate of the likely cost of implementing the president’s plan to partially privatize Social Security. In anticipation of the SOTU address, a senior administration official gave a background briefing where he told reporters that the costs of transitioning to a new system would be about $700 billion over ten years.

As we noted at the time, prior to this spin, the most commonly cited estimate for transition costs had been anywhere from $1 to $2 trillion, as calculated by Social Security’s actuaries. That number, often mentioned without a timeline, is still prevalent in today’s coverage. Another number often cited is $4.9 trillion over the first 20 years, an estimate supplied by the Center on Budget and Policy Priorities, a group that opposes Social Security privatization.

An Associated Press story that hit the wire yesterday demonstrates the typical way that these numbers are reported:

The administration has estimated that transition costs for the next 10 years would be $754 billion.

Critics contend the true costs would be in the trillions of dollars.

And it’s left at that. Yesterday, Bob Somerby, writing on the same subject, asked, “How fact-averse is our public discussion?” noting that there is no discussion of what will happen beyond that 10-year time frame, or of what the final tab will be.

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Take a look at this chart (reprinted below) constructed by CBPP based on a proposal similar to what Bush has advocated. The cost of the program (represented in the chart as additional government debt) continues to grow until about 2060. By that time, the CBPP estimates the total cost will reach about $9 trillion, adjusted for inflation.

Predictably, the White House, via inexplicably anonymous sources, is skeptical of CBPP’s calculations — although said anonymous sources raise no actual substantive challenge to the CBPP analysis. Jason Furman, a New York University economist working with CBPP, told CJR Daily that CBPP’s numbers aren’t perfect. They — like the numbers produced by the Social Security Administration’s actuaries and the Congressional Budget Office — are subject to inaccuracies in predictions about the size of the economy, future interest rates, and how many people choose to opt into the new program.

That said, the lack of precision calculations should not end the public discussion or debate. The simple truth is that “transition costs” will be incurred for much longer than the traditional 10-year budget window in which new proposals are discussed. The difference between the president’s $754 billion estimate and the SSA actuaries’ $1 billion calculation is paltry compared to the likely true cost of $6 or $7 or even $9 trillion. And 10 years of borrowing is insignificant compared to 50 years of going deeper into hock each year. (An analogy: $750 billion is to $9 trillion as $750 is to $9000.)

So far the White House is winning the PR battle. Not in the sense that the press has altogether accepted the $754 billion figure, but in the sense that it has allowed itself to be lulled into presenting the “transition period” as one that will be over sooner rather than later.

And that’s simply not the truth.

–Thomas Lang

Thomas Lang was a writer at CJR Daily.