Privatization of Social Security

The Ugly truth

Published on February 5, 2005 By dabe In Politics

Another example of Dubya trying to dismantle this country one issue at a time. This is one of those issue. Following are additional links regarding the SS privatization fiasco. Please don't let this happen. It is disastrous social policy that will only accomplish one thing: Make money for the stockbrokers, hand over fist.

* Privatizing Social Security will not mean more money for you.
Privatization will cut benefits by 30 percent even for workers who
don't choose to have private accounts. That adds up to $152,000
lost by the average worker who lives 20 years beyond retirement.
And if you do choose a private account, the government will take
back 50 cents for every $1 in your account--on top of the 30
percent benefit cut.

* Privatizing Social Security is not really voluntary. You'll get
the benefit cuts even if you don't want a privatized Social
Security account.

* You won't be in charge of your privatized Social Security account.
Politicians will hand-pick Wall Street firms to control the
investment accounts--paving the way to corruption and
Enron-ization of Social Security.

* Retirees can't pass privatized Social Security account money on to
your heirs. The accounts will be converted to annual payments.

* We have time to strengthen Social Security the right way--not by
slashing benefits. Social Security can pay full benefits until
2042 even with no changes at all. We should strengthen Social
Security with commonsense approaches--like requiring Congress to
pay back money it has borrowed from Social Security or rolling
back the most egregious tax breaks for the very wealthy.

You won't hear the word "privatization" coming from President
Bush--because his pollsters and spin doctors know America's voters
oppose privatizing Social Security. He'll call it "personalizing" Social
Security. No matter what word spin he uses, the reality is this:
Privatizing Social Security will cut benefits, add $2 trillion to the
federal deficit in just the first 10 years, push seniors into poverty
and replace guaranteed retirement income with "personalized" risk.

Take action to protect Social Security by signing the petition:

www.unionvoice.org/campaign/ProtectSocialSecurity/

More links:
AARP Link
Media Transparency Link
The Social Security Network Link
Center for American Progress Link

Comments

COL Gene

on Feb 05, 2005

Re: Social Security reform

I am the author of, For More For George W. which examines the policies of President Bush including Social Security.

I fully agree that we need to strengthen Social Security funding however it is not the crisis George Bush says that it is. The issue with Social Security is we have a bubble called the Baby Boomers which will put a strain on payments beginning sometime around 2042. In time this bubble will pass and the number of people working compared with the number of people receiving benefits will return to a level that will enable funding in the future. We need to provide the additional resources to the Social Security Trust Fund to get past the impact of the baby boomer retirement bubble.

There are many ways to provide the necessary funding to meet the financial obligations of that bubble. Social Security was intended to be a foundation something that was to be there regardless of fluctuations in the market. Under the president's plan, a future retiree could find their Social Security in jeopardy because the market was down at the time of their retirement. The place for individual accounts, that have the possibility to fluctuate, is for investments in addition to Social Security.

You will see from the excerpts in my book about Social Security that we need to look at ways to strengthen it other than those being recommended by the president. Below are the excerpts from my book with respect to Social Security:

Social Security under Bush ( from Four More For George W)

For most Americans the issue of how to preserve Social Security is an important one. Publicly Bush supports the Social Security system and has acknowledged that the long-term prospect requires change. He understands that Social Security, as we know it, will be unable to meet its obligations within the next 40 years. To evaluate the Bush policy on Social Security it is helpful to understand some of the basics about the Social Security system.

The simple fact is that Social Security, from its inception, was an unfunded pension plan. It was created in the wake of the great Depression, which wiped out the assets of a generation of Americans. It was created to provide a minimal amount of retirement income to millions of American workers who had lost their life’s savings and had no viable means of providing for their retirement years. The system was designed when people were expected to live only a few years past retirement and it was not designed to pay benefits to disabled workers. For the most part the system paid current benefits from current taxes. It was understood at times there would be some excess funds in the Social Security Trust Fund but it was not designed to hold the tax and pay it upon retirement.

When Social Security was enacted the demographics of this country were very different than they are today. In 1935 there were many working people paying into the system for every person receiving pension benefits. Therefore the issue of having enough money to pay benefits was not a problem. Some people still believe the money they had paid into Social Security is sitting someplace in a vault. Such is not the case and the money they paid into the system, for all practical purposes, has been paid out in benefits to people who have retired.

Some people believe the reason Social Security is in trouble is that the government misspent the money. That is not correct. The money was paid as envisioned to retirees, however, when you compare the amount of money paid into the system and the amount received from the system there is a significant imbalance. The first two generations who received Social Security benefits received as much as 20 times more in benefits than the taxes they and their employer paid into the system. Finally, the system was designed when people were expected to live about five years after retirement. Today people are living 15 to 25 years beyond retirement and drawing benefits for three to five times longer than anticipated when the system was created.

Finally, the changing demographics have placed the last nail in the coffin. When the system was started 25 to 30 people were working and paying in to the system for each person receiving benefits. As the baby boomers retire, we will have two to three people paying in to the system for every person receiving benefits and the projections worsen. It does not take a major in mathematics to understand why Social Security is in trouble.

Clearly the president understood there was a need to do something and that is why he created the Presidential Commission on Social Security. He started with the answer, which for him, was to privatize Social Security. Therefore the Presidential Commission did not begin with a clean slate to view all possible solutions, but rather started with Mr. Bush’s answer and worked back to the question. In addition Mr. Bush was careful to appoint members to the commission who shared his view of a solution. The results were three recommendations to partially privatize Social Security. In all three of the suggested solutions, monies would be diverted from younger workers Social Security taxes to create individual retirement accounts. The idea was to create a partially funded pension plan with the accumulation of the taxes diverted into the individual accounts plus the earnings produced by this money. It also provided for the transfer of this wealth between generations by allowing any unused amount in the individual accounts to pass at death.

Although this concept certainly has some positive facets, the basic question of how to pay benefits to the older workers while allowing younger workers to divert part of their Social Security taxes into the individual accounts was not addressed. It has been estimated a transition fund of over $4 Trillion would be needed to pay out expected benefits to the older retirees over the next 70 years. President Bush, nor the commission he appointed, identified a source to pay for this transition fund. It is not possible to implement such a policy without providing the funding to change from the current system to the proposed one.

Some suggested the use of General Fund revenue to transition the Social Security system. (The reality of this suggestion ignores the national debt which will be about $9 Trillion by the end of the Bush second term and the $420 Billion annual deficit. That huge increase in the total debt will cause the annual interest to explode in the future. In addition, the Bush plan never brings us to a balanced budget and the interest will continue it rise. His objective is to go from the current annual deficit of $425 Billion to $260 Billion by 2009.) Therefore President Bush supported a solution with no way of paying for his new system. This is one of the reasons why the former Secretary of the Treasury opposed the Bush tax cuts. He understood that there were significant needs to be met such as paying for Social Security. Unfortunately, when Mr. O’Neill explained that the tax cuts would eliminate the money required for things such as Social Security, the President, at the behest of his conservative cohorts, fired him. Had the President not hamstrung the commission and followed the advice of his Secretary of the Treasury, he may have been able to develop a viable solution to resolve the basic question of how to ensure the solvency of Social Security. The consequence of the Bush policy is that we are no closer to solving the Social Security funding crisis than we were three years ago. With each passing year a solution becomes much harder and more expensive.

Social Security Solution

Stop any attempt to extend Social Security benefits to illegal aliens.

Continue the gradual increase of full retirement to age 70.

Consider limiting the payout to retirees with non-Social Security income above $150,000 per year. When a retired couple has non-Social Security income above $150,000 per year (index this amount each year by cost of living), the benefit under Social Security would end at the point in which the individual’s contribution had been completely returned to the taxpayer. For example, if an individual during their lifetime paid $70,000 in Social Security taxes, excluding their employer contribution, their Social Security payments would terminate if their non-Social Security income exceeded the maximum amount when they reach a total payout of $70,000 in this example.

Should a retiree’s non-Social Security income fall below the maximum amount, the Social Security payments would resume based on their original entitlement so long as their non-Social Security income remained below the maximum amount.

Re-examine the option of allowing workers to set aside 2% or 4% of their Social Security tax to individual accounts. Issues to be evaluated should include:

Develop realistic estimates as to the transition costs. Identify the source needed to fund this transition amount before deciding to implement this change. In no event should any portion of the transition funding be borrowed!

Consider the impact on a worker who selects the private account option wherein the value of their account at the time of retirement was less than the total benefits that would be paid under the traditional Social Security amount. Would there be a provision to subsidize the payment of the amount received under the individual retirement option to bring it equal to the traditional Social Security benefit?

Evaluate an alternative to the individual equity account that would allow portions of the Social Security Trust Fund to be invested in stock market index funds. This would provide the advantage of increased earnings equity investments produce to help fund the baby boomer retirement, without the high cost to maintain millions of small accounts that would be required under the individual account concept. This idea has been successfully used by every state pension fund of the United States as well as many large corporate pension plans.

Consider lifting the income limit upon which Social Security taxes are paid to include all earned income similar to the current Medicare tax. This additional revenue would be used as the source for the transition funding required to convert the Social Security system to a partially privatized configuration or to solve the solvency issue by allowing an enlarged trust fund ( from the increases income limit) to be invested in equities without creating individual accounts.

Deference

on Feb 05, 2005

Kudos to both Dabe and Col Gene, excellent information and well done. I would like to see a counterpoint, but it's hard to defend such obviously bad policy.

dabe

on Feb 05, 2005

Yes, definitely kudos to COLgene for supplementing my post. It's really very clear that dubya's solution is not going to benefit anyone except to channel payola to his buddies. Thank you, Col gene. Thank you.

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