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Privatization Would Destroy Social Security

A BUZZFLASH READER CONTRIBUTION
by Matthew Cardinale

The Social Security Trust fund is sacred not only because it stores economic value to aid our elderly during retirement, but because it stores and reflects the public trust. The public trust has gone down in recent decades in the U.S., in media, in government, in businesses, and so, the public has little left to trust in these days except Social Security. It’s really like the last bastion of human sympathy. But if Republicans had their way even this would be destroyed.

To be sure, there is a projected shortfall in Social Security some 50 years down the road, but the funds needed to keep Social Security solvent could easily be raised by rolling back Bush’s unnecessary tax cuts benefiting the top 1% bracket in this country.

The alternatives to risky private accounts (which I would hardly call a solution for the shortfall) are to alter the payroll contribution structure (could work depending on whose contributions we alter), increase the federal deficit (not wise), lower benefits (not humane), or raise the retirement age (not fair).

The American Progress Action Fund reports, "During the next 75 years, the total shortfall for Social Security amounts to just 0.4 percent of GDP. Meanwhile, during that same period, President Bush's tax cuts just for the top one percent of earners (a group of people whose average income exceeds $1 million) will cost 0.6 percent of GDP." So Bush’s tax-cuts for the wealthiest equal one and a half times the social security gap.

It is important to note that Americans currently do not all pay the same percentage of their income towards the Trust Fund. Instead, all Americans pay 12.4% on the first $87,900 [including employers’ matching contributions of the workers’ 6.2%, which workers presumably still pay for by having lower wages]. This means, a worker earning $87,900/year puts about $10,000 towards Social Security, and so does someone earning millions.

Sen. Lindsay Graham (R-SC), according to the Los Angeles Times article on 11/28/04 by Janet Hook, has proposed increasing contributions by making the first $200,000 of a worker’s annual income taxable, instead of just the $87,900. This type of reexamination of the contributions system could be movement along the right lines.

As an alternative to this radical talk of private accounts, progressives should advocate for a system that would increase the responsibility of the highest wage-earners, which would simply create greater proportionality of contributions-per-earnings between all workers.

A troubling news piece in the New York Times (11/27/04) by Richard Stevenson reported that vast amounts of additional deficit borrowing are expected to be required to pay for the potentially $2 billion "transition" to social security private accounts.

These "transition costs" at hand refer to the fact that, if this unacceptable legislation were to be unstopped, then for each current worker who chose to "invest" a portion of their contribution in stocks instead of social security, the federal government would have to borrow money to pay for existing retirees’ benefits. Rep. Paul Ryan (R-WI) argues that as much as 6.4% of earnings should be eligible for private investment accounts (over half of the current contribution). Sen. Graham (R-SC) proposes half this amount.

But the $2 trillion in diverted, and potentially lost, contributions is only part of the "transition" cost estimate. Private brokers at firms like Charles Schwab are poised to make unseemly hundreds of billions of dollars in ongoing transaction fees. A new study by Prof. Austan Goolsbee at the University of Chicago says, "The net present value of such payments would be $940 billion [over 75 years]. These expenses amount to more than 25% of the existing deficit in social security over the same period."

Goolsbee writes, "The fees would be the largest windfall gain in American financial history."

Dean Baker and David Rosnick of The Center for Economic and Policy Research (www.cepr.net) report in a new paper that currently Social Security is one of the most efficiently run government programs. "On average," the authors state, "less than 0.6 cents of every dollar paid out in Social Security benefits goes to pay administrative costs... President Bush's Social Security commission estimated under their system of individual accounts, 5 cents of every dollar would go to pay administrative costs."

The point of Social Security is to have a guarantee that no matter what happens with our shaky economy, that retired seniors will have minimum necessary funding to take care of their basic needs.

Columnist Molly Ivins wrote in 2001, "You know perfectly well a lot of people will get ripped off if they control their own retirement money. Older people are particularly vulnerable to con artists... Think only the feeble-minded will lose? Who lost money in high tech? Wasn't it all those brilliant young hotshots we kept hearing about? Wasn't it the NASDAQ that went down 60 percent?"

Yet, I can just hear the Libertarians arguing now: But, private accounts encourage people to have a stake in the economy. It’s empowering and encourages personal responsibility. We’re talking about an "Ownership Society!"

So let me preempt their argument by saying, yes, I agree that working families should have a stake in the economy, in their government, in their community. I just think it’s very unwise to mess with Social Security funds for that purpose.

A number of sound policies would truly allow working families to have an empowering stake in society. To be exact, universal health care, increasing the minimum wage, and enacting the Bring America Home legislation, would give many working families the basic tools and resources to both work hard and feel part of a community.

But the opposite of "social security" is "Individual Risk." Today’s working family is isolated, alienated, struggling. The GOP’s wish to destroy Social Security is not merely about lining the pockets of their corporate banker friends, but it’s about expanding the risks faced by individual citizens, knowing full well the poor and disadvantaged fall most often through an unraveling safety net.

A BUZZFLASH READER CONTRIBUTION

Matthew Cardinale is a freelance writer, activist, and graduate student at UC Irvine in sociology and democracy studies. He may be reached at mcardina@uci.edu.