To: "homestead AT lists.ibiblio.org" <homestead AT lists.ibiblio.org>
Subject: [Homestead] Social Security 2005
Date: Mon, 13 Dec 2004 09:47:41 -0700
This fourth post on the subject balances it out, two for and two against
the proposed privatization plan. This one is against. Have any of you found
a site that has actual proposed language of a privatization plan? Seems to
me that the Bush administration is waving the privatization flag to see how
many bullets will be shot at it and the nature and quality of those
bullets, so they can then be prepared to overcome all objections.
Selling Social Security
By Dean Baker, In These Times. Posted December 13, 2004.
Nov. 2 was just the beginning of the bad news. Two days after the election,
before most of us had even recovered, President Bush told the country that
he would use his political capital to privatize Social Security.
This declaration of war was smart strategy. Social Security is by far the
countrys most important and successful social program. Over the last seven
decades it has provided a decent retirement to tens of millions of workers
and their spouses. It also provides disability and survivor insurance to
almost the entire working population nearly two million children are
currently receiving survivors benefits. For these reasons, Social Security
enjoys enormous public support, regularly getting approval ratings of close
to 90 percent in public opinion surveys.
If Bush is going to privatize Social Security, he must move hard and fast
as he has. And if we are going to save it, progressive forces will have to
mobilize quickly.
Fact vs. Fear
The key to stopping this drive for privatization will be to educate the
public about the basic facts on Social Security. For two decades, the right
has been working overtime to undermine confidence in the program. Groups
like the Concord Coalition have been telling the country that Social
Security is a Ponzi scheme that will inevitably collapse once the baby
boomers retire.
The fearmongers have been largely successful. Many workers, especially
those under 40, are convinced that Social Security will be bankrupt before
they see a dime in benefits. For these people, the promise of a private
account sounds pretty good, since they dont believe they will ever get
anything from Social Security anyhow.
Progressives must use every means available to tell people that they have
been lied to about Social Security. The program is unambiguously healthy.
The Social Security trustees report (available on the Social Security
Administrations Web site) shows that the program can pay every penny of
benefits through the year 2042, with no changes whatsoever.
Even after 2042, the trustees projections show that while the program
wont have enough to pay currently scheduled benefits which are
approximately 40 percent higher than current benefits it will still have
enough money to pay benefits higher than those that current retirees
receive, even when indexed for inflation. The changes necessary to allow
full scheduled benefits to be paid throughout Social Securitys 75-year
planning period are smaller than the changes to Social Security increased
Social Security taxes and benefit cuts that were made in each of the
decades from the 1950s through the 80s.
Last June, the nonpartisan Congressional Budget Office (CBO) made an
independent assessment of Social Securitys finances and concluded that the
program could pay all benefits even longer until 2052 with no changes
whatsoever. According to the CBO, the changes needed to keep the program
fully funded through its 75-year planning period are less than half as
large as the Social Security tax increases put in place in the 1980s.
Just to be clear, neither of these projections is based on a rosy scenario
about the future. In fact, the Social Security trustees assume that over
the next 75 years the economy will experience the slowest pace of
productivity growth in its history theres no new economy in this story.
In short, the claims that Social Security is in imminent danger of
bankruptcy are just like the claims about Saddam Husseins weapons of mass
destruction politically motivated lies.
One such claim that gets frequently repeated is that the Social Security
trust fund has been raided, spent, or is just worthless pieces of
paper. In fact, the Social Security trust fund holds almost $2 trillion of
government bonds. Under the law, the government must repay these bonds to
Social Security from general revenue this means it will be repaid
primarily from progressive personal and corporate income taxes, because
workers have already paid for their Social Security benefits. In other
words, the government is obligated to tax wealthy people like Donald Trump
and Peter Peterson (the founder of the Concord Coalition) to pay for the
Social Security benefits that the rest of us have already earned.
The Social Security system lent money to the government to buy these bonds.
(This is by design the trust fund was built up to help pay for the
retirement of the baby boomers.) The fact that the government spent the
money is meaningless just as it is meaningless if the government spends
the money it borrows by issuing any other bond. The government is still
legally obligated to repay the bond. In short, the people who say there is
no trust fund are misleading the public. There is a trust fund with $2
trillion (growing at the rate of $200 billion a year) unless we let
Congress eliminate it.
Privatized Pipe Dreams
Are private accounts a remedy?
The Bush privatization plan proposes to couple newly created private
accounts with large cuts in current basic Social Security benefits. Under
this scheme each retiree will get benefits from both these sources.
First, it is important to realize that the privatizers are making
implausible claims about the potential returns available from investing in
the stock market. Remember, these are exactly the same people who at the
peak of the Internet bubble in 2000 promised that workers would get great
returns from investing their Social Security money in the stock market.
No privatizer has yet been able to document in numbers how the privatizers
will get their projected stock returns (showing annual dividend payouts and
capital gains). When it comes to simple arithmetic, involving trillions of
dollars of workers Social Security money, the privatizers flunk the test.
While private accounts wont do much to increase returns, they will
certainly increase risk and add hugely to administrative costs. A worker
who happens to retire during a market slump will see much of their benefit
disappear. In countries that already have private accounts, like England
and Chile, the administrative fees are between 15 and 20 percent of annual
benefits. By comparison, the administrative costs of Social Security are
less than 0.6 percent of annual benefits. In addition, retirees who want to
buy an annuity (an inflation-protected life-long annual payout, like that
provided by Social Security) will typically have to pay a fee of at least
10 percent of their private account to convert their account to an annuity.
The bottom line is that under Bushs proposal, workers can expect to see
considerably reduced benefits, since private accounts will not come close
to making up for the accompanying benefit cuts. Under the plan that would
provide the basis for Bushs privatization scheme, an average 15-year-old
today who retires in 2055 will lose more than 35 percent ($160,000) of his
currently scheduled benefit over the course of his retirement. He stands to
gain back less than one-third of this $160,000 loss from a private account.
Social Security privatization does not look good for most workers because
they can expect large benefit cuts, but it is likely to be especially bad
for those in lower-income brackets. While Bushs privatization plan
actually provides modest benefit increases for low-end workers, it also
puts in place a structure that will force the middle class to depend less
on the traditionally defined Social Security benefits and more on private
retirement accounts.
Bushs plan gradually reduces the size of the traditional benefit received
by middle-class workers, while increasing the size of private accounts
until finally the defined Social Security benefit will become almost
irrelevant to anyone but the poor. Under the Bush plan, a child born today
who earns an average wage during his working lifetime would get a defined
benefit equal to just 10 percent of his wage when he retires. As the middle
class depends less and less on Social Security, the benefits pledged to the
poor would enjoy about as much political support as welfare does today. Now
that would really be a Mission Accomplished!
The privatization of Social Security can be stopped. Bush may no longer
have to worry about re-election, but members of Congress do. There can be
no more important battle. If Bush is stopped on Social Security, then his
political capital will have been spent, and he will be the lamest of lame
ducks. On the other hand, if he wins ... well, thats not going to happen.
Dean Baker is co-director of the Center for Economic and Policy Research. http://www.alternet.org/election04/20721/
Re: [Homestead] Social Security 2005
, (continued)