The future of Social Security is in danger. Just when we thought the Republicans were backing off, we find that the President included $712 billion for 'private accounts' in the current budget. Social Security, which keeps half of America's seniors from falling into poverty, must not be transformed into a risky personal investment scheme. It is the mainstay of our social 'safety net,' and its health and security must be a top priority.
President George W. Bush is determined to follow his own agenda, no matter what Congress or the American people want. He flamed fears after 9/11 to push this nation into an unnecessary and tragic war with Iraq, and now he is determined to push his plans to privatize Social Security. He included a proposal in the current federal budget to divert $712.144 billion from the Social Security Trust Fund over the next seven years to private accounts. If implemented, this will affect everyone's payments and jeopardize the whole system. We cannot let this happen. There are over 90,000 Social Security recipients in District 11. We must stop this right-wing madness by defeating Richard Pombo and creating a Democratic Congressional majority that can stop this cruel effort.
Social Security is a treasure America inherited from the dark days of the Great Depression. At a time of unemployment, hunger and want, our nation made a commitment that any one who wants to work and who plays by the rules should not have to suffer the hardships and indignities of poverty. The bonds of trust built by that action helped to heal a deeply divided nation.
Today, many of us are facing hard times in an insecure and rapidly changing world. Social Security is a safety net that we have been able to count upon. It is a social insurance program for wage earners. It provides disability insurance for those injured on the job and it is a lifeline for their dependents. It is there for children and for families who lose their breadwinner. When we are too old to work, it enables us to live without fear of destitution. 48 million Americans are currently receiving Social Security benefits. More than one half of them would be living in poverty if this program did not exist.
Half-truths and Out-right Lies
Let's look at the facts about Social Security. The President said in his State of the Union Address in 2005 that the system was heading for insolvency; that the retirement of the Baby Boomers combined with certain long-range demographic changes would bankrupt the system.
This is less than a half-truth. In 1984, the Greenspan Commission raised the payroll tax on Social Security to create a surplus that could carry the Baby Boomers through their retirement. That tax is generating a surplus that will reach $5.3 trillion by 2018. That surplus will cover Social Security past the Baby Boomer crunch and cover all promised benefits until at least 2041 according to the non-partisan Congressional Budget Office.
The Baby Boomer impact on Social Security has been taken care of. What about the long-term demographic trends? This problem won't kick in until 2041 at the earliest - so there's no need to talk of a crisis. We have time to address any revenue issues.
However, those who talk of crisis' say we have to act now, that the problem is catastrophic. And once again, they use half-truths to frighten the people into following their irresponsible leadership.
How Serious Are the Demographic Changes?
While the US is experiencing certain long-range demographic changes, their effects have been greatly exaggerated. We might have to make some adjustments to fully fund the system in the future (after 2041), but these adjustments will be neither drastic nor painful. Indeed, they may not even be necessary.
Those who predict bankruptcy are using scare tactics that have no basis in fact. If we do nothing to change the funding of Social Security, in 2041 (or later) when the surplus runs out, the system would still be able to fund benefits at 73% the promised level. Given Social Security's method of calculating benefit levels based on rising wages, that would involve no reduction from current benefit levels that recipients receive today.
The President used deceptive statistics in his State of the Union speech to give the impression that social Security was unsustainable. He said that in 1950, the ratio of those who paid into the system to those who received benefits was 16 to 1; it is 3.2 to 1 today; and that in 2042 it will be 2.1 to 1. This gives the impression of drastic and constant demographic changes. In 1950, the Social Security system was only 15 years old, and did not yet have many retirees. 1975 was the year the Social Security System came of age and reflected the distribution of age categories in the larger society. In 1975, the ratio of those paying into the system to those receiving benefits was 3.2 to 1. The same as it is today. That figure has remained constant for forty years. This ratio will change with the passing of the Baby Boomers, but it is by no means clear by how much.
The key variable in predicting the future solvency of Social Security is not how much longer people live. It is, instead, the economy's rate of growth. This shapes the most important demographic indicators - employment to retiree ratio, payroll tax revenues, and immigration. The Social Security Trustees, most of whom are Bush appointees, use the pessimistic assumption that the US economy will grow at a rate of 2.1% over the next seventy-five years. If the economy grows at 3.4%, the rate it has for the past 35 years, there may well not be any Social Security shortfall in any future year. But even if the pessimistic predictions hold, there will not be a serious crisis. We invite you to go to the AARP web site where you can see how we could fund the shortfall predicted by the Bush-appointed Social Security Trustees without even raising payroll taxes.
The President's Proposals Cut Benefits
We should all understand that the administration's proposals do not fix Social Security. All the proposals presented so far are aimed at reducing benefits and are designed to turn Social Security into something it was not designed to be. Private investment accounts put no money into the Social Security system, but instead, divert 1/3 of payroll taxes from guaranteed benefits. Because such savings accounts take a lifetime to mature, this proposal would destroy Social Security as a provider of disability insurance for those whose working life was cut short by an injury.
The returns expected from these private accounts have been greatly exaggerated. Many economists predict that when fees and risks are factored in, they would result in benefit reductions of from 20 % to 40%. This is what happened in Britain and Chile.
Disabled and retired workers need a secure and steady income. Private accounts would subject their retirement to all the risks and uncertainties of the stock market. With the collapse of more and more private retirement systems, we need Social Security as an ironclad safeguard against poverty. We must not allow it to be turned into a risky personal investment scheme.
Progressive indexing is also a bad idea. While it preserves Social Security benefits for those making less than $23,000 a year, it reduces benefits for all others - by as much as 50% for those making over $56,000. This would transform Social Security into a welfare system, making it a bad investment for the majority of wage earners, which would eventually cause them to oppose its continuation.
Repaying the Trust Fund
One of the arguments for private investment accounts is that they would stop the government from stealing' the Social Security surplus and spending it on other projects. They claim that is what happened previously - that there is nothing left in the Social Security Trust Fund because all the money has been spent, that only worthless IOU's remain. This is a complete distortion of the facts.
The surplus accumulating in the Social Security Trust Fund was and is raised by a dedicated payroll tax. This tax is credited to the Trust Fund. The Trust Fund, as prescribed by law, invests this income in special issue, non-negotiable, interest-bearing Treasury Bonds. As with every purchase of bonds, this is a kind of loan to the government. Of course the government spends the money. When you get a loan from a bank, you buy something with it. However, because you spend the money doesn't mean you don't have to pay the loan back. The treasury bonds purchased by the Social Security Trust Fund are fully accredited and are redeemable by law. The responsibility of the US Treasury to repay such bond issues is written into the Fourteenth Amendment of the Constitution.
Those who talk of about this money being stolen' are hoping to convince the American people that it is gone and can't be brought back. It is not gone. But the government must be forced to redeem the treasury bonds in the Trust Fund. We cannot allow greed, callousness, and moral bankruptcy to destroy a program that is a big part of what makes us proud to be Americans.