Social Security

Nightmare on Alms Street
    By Martha Burk
    TomPaine.com
    Tuesday 13 February 2007

God, it's like Freddy Krueger, the monster from Nightmare on Elm Street. George W. Bush's proposal to privatize Social Security b-a-a-a-ck again, refusing to die. It's right there front and center in the new budget on the White House website. Ever delusional and ever loyal to Wall Street, George W. proposes diverting some payroll taxes to private accounts. Give the man credit for stubborn. He must have slept through the debate in 2005, when his plan was soundly trounced in the court of public opinion and even his own party, solidly in the majority, couldn't muster support.

OK, George, let's through this one more time. Privatizing Social Security is a nightmare of an idea. It is a particularly bad idea for older women, who depend on the system more than men. Social Security is women's main retirement. Without it, an astonishing 59.2 percent would live in poverty in their old age. That's because women earn less throughout their lives, get a big fat zero added to their Social Security tally for every year they spend out of the workforce taking care of kids or elderly parents and have lower and fewer private pensions to fall back on when retirement day comes.

The FDR New Deal income insurance program has been a target of conservatives since its inception and is now targeted for dismantling by the Bush administration. The Bush plan is still shifting in the face of mounting opposition, but essentially says: Retain current benefits for today's retirees, then reduce benefits. Divert a portion of payroll deductions, which employees could then invest in private (or personal) accounts. Somehow make up the difference between reduced pay-ins and benefits still paid out. Finance the transition either with increased government borrowing, huge cuts in other programs or higher taxes.

While Bush spokesmen claim Social Security is ‘in crisis’ and will be ‘bankrupt’ by mid 21^st century, experts at Social Security and the Congressional Budget Office, say otherwise. Payroll taxes currently pay out benefits with the remainder invested in US treasury bonds which earn interest. This Trust fund continues to grow. Social Security can operate in this way until 2018, when increasing numbers of ‘baby boomers’ receiving benefits will outweigh the reduced numbers of their children paying into the fund. At that time, part of the interest will have to be diverted to help pay benefits and no new bonds will be bought.

Eventually, as bonds are ‘redeemed’, there will be no new interest income, and the principal in the Trust will be used to help pay benefits. When this principal is depleted – around mid century – payroll taxes will only cover part of the benefits paid out to the last of the baby boomers, and the government will have to subsidize part of the benefits temporarily. Once the large generation of ‘boomers’ die off and their (fewer) children become recipients, the fund will go back into a surplus.

If the Bush proposal were enacted this year, it would advance the date at which Social Security’s benefit costs exceed its non-interest income from 2018 to 2006! (not a typo – that’s next year!)

Risks associated with stock investment might be reduced if the money were managed by the government in low-risk, low-yield stocks. This would not constitute a ‘private’ account, however, and would involve higher administration and brokers’ fees. In countries where private accounts have been tried, such fees amount to nearly 20% of pay-ins, as compared the 1% administration cost Social Security runs. And as investments have not all been successful, the governments – in both Chile and the UK, for example – have been forced to step in again and subsidize benefits to stave off widespread poverty among the elderly.

In a September 2004 editorial, the New York Times noted several additional arguments against the Bush proposal.

1) Privatization invites overexposure to the stock market, with retirement already relying heavily on investment through 401(k)s.

2) People without pensions or enough income to save money in retirement plans generally do not belong in the stock market at all.

3) People are living longer, so unless they convert their personal accounts into private annuities, retirees will be in danger of outliving their money.

4) People would lose the inflation protection built into government benefits, which is important the longer you live.

5) We all lose if our fellow citizens come up short. Young people who don’t want to pay for older retirees through the system will pay even more when they have to support aged parents.

The Bush administration plans a major media blitz to build support for its proposal (whatever that looks like when the details are revealed). The media campaign will be paid for by beneficiaries of the change, such as investment managers and corporate employers, as well as conservative think tanks.

Those opposed to privatisation include the Democratic Party, AFL-CIO, the National Assn. for the Advancement of Colored People, the National Organization of Women, and the AARP.

Inform yourself further. A number of links and articles are posted on this page.

Write to your congressmen and senators, of either party, and express your opposition. Remember, not all GOP officials are sure they can support privatisation.

Write letters to the editor of your hometown or regional paper. Brief is best, and many require that you write in response to an article they have published.

The system can remain much as it is, and the non-crisis completely averted, if payroll deductions are raised. A small percentage increase can be applied to those currently paying.

The cap on Social Security taxable income can be raised, so that high-end incomes will also be taxed. This latter proposal would make Social Security a more progressive tax. (e.g. 6.2% of a $30,000 income equals 6.2%, while 6.2% on half of a $60,000 income is only 3.1%)

A few moderate Democrats, mostly from states Bush won in 2004, are trying to keep an open mind about private accounts. A leader of that faction is Sen. Thomas Carper (D-Del.), who was trying to develop a Democratic alternative. It now appears that Democrats will withhold their ideas until debates in Congress open on the matter.