Save Social Security
The Progressive magazine, January
Throughout his Presidential campaign,
George W. Bush indignantly denied that he intended to privatize
Social Security. 'Whenever John Kerry would level such a charge,
the Republicans would squawk about Democratic scare tactics.
But it didn't take Bush long after November
2 to announce that he did, in fact, intend to privatize at least
part of Social Security. At his first press conference after the
vote, less than forty-eight hours after the polls closed, Bush
said that "reforming" Social Security was one of his
His friends on Wall Street could not have
been happier. Allowing people to invest even a small fraction
of their Social Security taxes in the stock market would bring
huge profits to investment companies.
And it is these groups-along with recalcitrant
Republicans who have waited seventy years to invalidate the New
Deal-that have been behind the privatization effort all along.
As far back as 1996, The Wall Street Journal
did a story with the none-too-subtle headline, "Privatizing
a Portion of Social Security Could Shower Billions on Mutual Funds."
That article noted that this "could be the biggest bonanza
in the history of the mutual-fund industry"
These same companies began a massive PR
campaign to convince the American public of the need for privatization.
Robert Dreyfuss, writing in Mother Jones that same year, reported
that "investment companies and the Fortune 500 are funneling
millions of dollars in seed money to think tanks, 'grassroots'
organizations, and politicians friendly to the ideas of privatization."
These investments would be well worth
it if Bush's privatization plan goes through. Wall Street companies
stand to gain as much as $75 billion a year, according to Kenneth
Worthington, an analyst with CIBC World Markets. He wrote a recent
report entitled, "Bush's Plan for Social Security Reform
Could Be Electric for Financials."
To execute this tingling money grab, Wall
Street investment houses and anti-New Deal Republicans have sparked
an outcry about an impending crisis in Social Security, a crisis
that demands immediate action. So successful have they been that
many pundits and journalists have now adopted this crisis as a
given. Tim Russert on Meet the Press prattles on about it as though
doomsday were at dawn. Even a recent article in The New York Times
by Richard W. Stevenson that was critical of Bush's privatization
plan included the Chicken Little line that Social Security is
"about to come under intense financial strain."
Do not be deceived.
The crisis is confected. Social Security
is not about to go bust. According to a study by the Social Security
trustees, the system is solvent until 2042. A General Accounting
Office study extends that solvency to the year 2052. In either
case, the so-called crisis is decades away.
Russert and others contend that Social
Security won't be able to handle the baby boomers, but as Mark
Weisbrot of the Center for Economic and Policy Research has pointed
out, "most of the baby boomers will be dead" by 2042.
And it's not as though Social Security's
coffers would be bare when that year finally does arrive. Instead,
Social Security would still be able to meet 75 percent of its
obligations to its retirees.
To make up the last quarter would be relatively
Dean Baker and David Rosnick, in a recent
study for the Center for Economic and Policy Research, say that
one alternative is "to raise the ceiling on taxable wages."
At the moment, they note, "no Social Security taxes are paid
on income earned above $87,900."
That's right: If you're making $87,900
a year, you are paying the exact same amount in Social Security
taxes as Bill Gates is. Raising the ceiling even to $110,000,
Baker and Rosnick say, would eliminate a huge chunk of the deficit
that will arrive either in 2042 or 2052.
Or, they say, Congress could simply increase
the Social Security payroll tax by a small amount. "Social
Security can be made solvent throughout its seventy-five year
planning period with a tax increase that is less than one quarter
as large as the one in the '80s," Baker and Rosnick write.
Another way to meet much of the need down
the road would be to keep the estate tax on the largest estates
and put that revenue into the Social Security Trust Fund. "Adopting
this approach would reduce the size of the Social Security shortfall
by about 40 percent," says the Center on Budget and Policy
Priorities, which bases that figure on a report by the General
Finally, new state and local government
employees could be required to pay into the Social Security Trust
Fund. Almost seven million state and local government employees
don't contribute to-and are not recipients of-Social Security
today because they are covered by their localities' public retirement
plans. But if the new employees joined Social Security, they would
bring new revenues into the pot and would reduce the long-term
deficit by more than 20 percent, according to Edith U. Fierst,
who was a member of the Clinton Administration's Social Security
Instead of proposing any variety of prudent
fixes along the edges, Bush wants to take a sledgehammer to Social
Bush's privatization effort, far from
"reforming" Social Security, would actually drain it
of revenues, increase the national debt, and put at risk the savings
of those individuals who opt for speculating in the stock market.
Privatization would be especially onerous on women, the poor,
and the disabled. But it would also imperil the promise of a secure
retirement for people of every age group.
The first problem is the huge funding
gap that even partial privatization would create all on its own.
The way Social Security operates is that current workers pay into
the system, and their contributions cover the benefits for those
who are already retired and disabled. But if the current generation
of workers is allowed to withdraw some of its Social Security
contributions to invest in the market, then there will be less
money available to cover people right now.
"Diverting just two percentage points
of payroll taxes would create a gap of up to $2 trillion over
the first ten years, according to various projections," The
Wall Street Journal notes.
To finance that huge gap, Bush would have
to choose either to raise taxes or to put the government further
in debt. Since he's never met a debt he didn't like, that seems
to be his preference this time around.
Personal investment accounts "could
in the short-run require additional borrowing to finance the transition,"
Joshua Bolten, the director of the Office of Management and Budget,
told The New York Times.
The idea that Bush would add on to the
federal deficit, which stands at more than $400 billion for 2005,
is not going down well with some of his fellow Republicans.
"He's got a problem getting this
through," Representative Tom Davis, Republican of Virginia,
told The Wall Street Journal. "Floating a bond issue of a
trillion dollars is not the message you want to send to the markets
right now. Deficits are beginning to matter." Davis claims
that about 10 percent of Republicans in the House oppose Bush's
privatization scheme. If they hold their ground, it could be a
That would be good news for all Americans
except the CEOs of the investment firms.
President Bush appears to be basing his
privatization idea on a proposal that would actually phase in
cuts to Social Security beneficiaries over time.
N. Gregory Mankiw, Bush's chairman of
the Council of Economic Advisers, is trying to get Americans used
to the eventuality that their benefits will be cut. "Let
me state clearly that there are no free lunches here," Mankiw
said on December 2. "The benefits now scheduled for future
generations under current law are not sustainable." He called
them "empty promises."
The cuts could be deep.
"A worker who is forty-five today
can expect to see a cut in guaranteed benefits of around 15 percent,"
Baker and Rosnick report. 'A worker who is age thirty-five can
expect to see a cut in the guaranteed benefit of approximately
25 percent. A fifteen-year-old who is just entering the work force
can expect a benefit cut of close to 40 percent."
Baker and Rosnick predict that those who
invest in the private market are unlikely to be able to recoup
these losses. That fifteen-year-old, for example, "can expect
to make back approximately $50,000 from the $160,000 cut with
earnings on a private account," they write. "If this
worker retires when the market is in a slump, then it could make
their loss even bigger."
By taking benefits away, Bush would make
the system less progressive. Currently, "Social Security
benefits are highly progressive, so that low wage workers get
a much higher share of their wages in benefits than do high wage
workers," Baker and Rosnick note. 'A worker who earned $10,000
a year during their working lifetime can expect to see a benefit
that is equal to approximately 75 percent of their average wage.
A worker who earned $33,000 a year will get a benefit that is
equal to approximately 45 percent of their wage, while a worker
who earned $50,000 on average will get a benefit that is equal
to 39 percent of their wage."
But under Bush's plans, these guaranteed
progressive benefits will drop. And if the worker makes a bad
investment, they will drop even further.
If you are disabled, the problems only
multiply. "Even under the best of circumstances, Social Security
reform proposals would reduce benefits" for people with disabilities,
according to a 2001 General Accounting Office study. It predicted
that people with disabilities would see a loss in benefits between
4 percent and 18 percent.
"Social Security is not just about
retirement," Senator Tom Harkin, Democrat of Iowa, has said.
"It's also about protecting people who are wiped out by accident
or illness that leaves them disabled. You can plan your retirement,
but you can't plan for disability. It can happen to anyone at
any time." Harkin pledges to protect the benefits of the
disabled in the legislative battle ahead.
Women stand to lose, as well. "If
Bush follows through with his plan to privatize Social Security,
women will be more affected than men," Diana Zuckerman, president
of the National Research Center for Women & Families, writes
in a November 29 column in the Detroit Free Press. "Women
depend more on Social Security than men do, because women are
less likely to have their own private pensions when they retire.
When women have private pensions, their pension checks are, on
average, half as large as men's are."
Women also live longer, and if they are
widows, they may depend on their deceased husbands' Social Security.
If he squandered some of it in the market, she will suffer the
As the National Organization for Women
has noted, "Advocates must keep asking the questions that
will face many older women. What happens when your savings run
out? What happens if your husband chooses not to share his personal
savings account with you? What if inflation spirals out of control
and much of the value of personal savings is eroded? What if your
spouse was a foolish investor? What if the stock market crashes
and loses value at about the time you want to retire?"
At bottom, the fight over Social Security
is a fight over what kind of society we want to be. Are we a caring
society, which ensures that the elderly, the disabled, and the
widowed have a safe harbor? Or shall we revert to a society where
the unpredictable winds of the market buffet our most vulnerable
citizens this way and that?
Seventy years ago, when the flaws of capitalism
were painfully glaring, we had a patrician President who, under
tremendous social pressure, bent the iron laws of the free market
and committed the government to something greater than refereeing
disputes between property owners.
At present, when capitalism's cruel vicissitudes
are beginning to slash deeply once more, we have a patrician President,
freed from social pressure, who carries water for Wall Street
and leaves the vulnerable to fend for themselves.
We must put the pressure back on. The
Campaign for America's Future, among other groups, is trying to
stir the grassroots and organize a mighty citizens' movement to
protect Social Security.
"The time is now," says Roger
Hickey, co-director of the campaign, "for voters to tell
our members of Congress, 'Don't you dare privatize Social Security.'
Without a massive outpouring from Americans, there's a real danger
that just enough Representatives in Washington-including some
Democrats-will cave in early and vote with the special interests
.... If you act now, you can stop the Bush plan."
The Bush effort to gut Social Security
is the culmination of decades of Republican revanchism. We cannot
let him-or this reactionary movement-succeed.