4-29-05, 2:36 pm
During his prime time news conference Thursday evening, President Bush offered a new twist to his Social Security privatization plan. Using the term 'sliding scale,' Bush unveiled new rhetorical euphemisms for cutting benefits.
Meanwhile, Bush’s privatization plan remains bogged down in Congress. Most Democrats refuse to support a bill that privatizes Social Security and requires massive benefit cuts. Benefit cuts have become a non-starter for them.
Republicans on the other hand are feeling the heat from constituents. Social Security provides benefits for close to 50 million retirees, their dependents and survivors, and disabled people and their dependents. About 159 million future retirees are covered by Social Security.
Only Republican hard liners support Bush’s plan hook line and sinker. Still, while the hard right quietly would like to achieve Bush’s real goal – elimination of Social Security as a public program – they fear the transition could harm Republican reelection chances. They also have drawn a line against raising taxes to fund benefits.
Cutting benefits, then, remains the best offer the Republicans have for 'strengthening' Social Security.
They can’t explain, however, how privatization would fiscally strengthen the program itself or the US Treasury in general. Bush has even admitted that privatization wouldn’t boost Social Security’s projected financial picture.
The Center for American Progress points out that 'privatization requires trillions of dollars in new debt, worsening Social Security’s solvency and placing huge burdens on future generations.' The Center on Budget and Policy Priorities (CBPP) estimates that Bush’s privatization plan would add $4.9 trillion in new debt in its first 20 years.
Data provided by the Center for Economic and Policy Research shows that the average retiree would lose as much as $152,000 in retirements benefits if Social Security were privatized. Benefits would be cut by 40 percent even for workers who do not choose private accounts.
But the gouging wouldn’t stop there. The CBPP argues that because of the way private accounts would be structured, the government would extract another 70 cents on the dollar from each account.
On top of hiding this information, the Bush administration has provided little in-depth analysis of how private accounts would actually work. This is because they know that most people don’t trust private investment. The recent stock market mini-collapse over the past two weeks show the dangers of basing such a large program, on which tens of millions of people rely, on investment in the stock market.
Most people agree that Enron-style corruption and waste are problems that occur far too often on Wall Street to entrust their retirement futures to it. But even if Wall Street wasn’t basically corrupt and greedy, and if it was a stable form of investment, private accounts couldn’t provide as much income as current Social Security benefits do. Even if private accounts provided a return equal to realistic estimates of what small, long-term stock market investors can expect, it wouldn’t equal current Social Security benefits.
This issue hasn’t come up in Bush’s taxpayer-funded public relations tour to promote Social Security privatization.
Small rates of return from private accounts would lead many retirees to want to withdraw funds from their investment principal to cover shortfalls in monthly income for day-to-day expenses.
The problem is that government regulations wouldn’t let them do it. And this is what Bush doesn’t talk about either, for a very good reason. Privatization would require strict controls over how much retirees could withdraw from their accounts because what happens when a few million people, short on income for the month, decide to take several hundred dollars from their accounts all at once?
Hundreds of millions even billions of dollars would be extracted from the stock market in a very short period of time, creating a stock market crash that could simply wipe out millions in value from all private accounts.
Private accounts would create the conundrum of increased financial hardship for retirees or frequent stock market problems. Who do you think the privatization plan favors?
So, step back, clear away the fog, and examine closely Bush’s privatization plan: It hands trillions in public resources over to a handful of private corporations in accounts strictly regulated by the government and tightly controlled by private corporations. The result would be that big investment firms would get rich off of brokerage fees and investment returns, using your savings, while retirees and disabled workers would lose control over their savings and would see a smaller rate of return than Social Security currently provides.
Social Security’s Future Strength
So what can we do now to strengthen Social Security without gutting the program and ultimately destroying it?
Social Security is financed through a payroll tax, but stagnant real wages over the last 20 years for most workers means their real contributions have also been relatively stagnant. Good jobs, job security, and union wages (about 22 percent higher than non-union wages) would promote adequate wage growth that would strengthen Social Security’s financial picture by expanding its revenue base.
Of additional significance to Social Security’s financial health has been a 'cap' on income that is subject to the payroll tax. Currently income over $90,000 isn’t subject to the payroll tax. The Economic Policy Institute (EPI) estimates that eliminating the 'cap' would inject billions into the program and wipe out 90 percent of the projected financial shortfall.
In fact, EPI says, demographic issues like a perceived unfavorable worker/retiree ratio is negligible compared to the wage trend and the cap issues.
How is it possible that these simple methods for strengthening Social Security could be missed so easily by Congress?
Look, it’s easy:
None of these immediate solutions require massive debt, huge benefits cuts, crazy investment schemes, or threats to future retirees. They don’t even require major ideological concessions by most members of Congress – with the exception of the hard right that wants Social Security eliminated.
Longer-term solutions do, however, require a shift of policy priorities and political power away from the hard right that dominates the Republican Party:
--Joel Wendland can be reached at jwendland@politicalaffairs.net.
