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Assessing the Winners and Losers in Three of Today's Policy Debates

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Assessing the Winners and Losers in Three of Today's Policy Debates
March 23, 2005

Speech to the Mt. Pleasant Rotary Club in Mt. Pleasant, South Carolina.

There are a number of issues on the political horizon today that, in my opinion, could be devastating to the greater good. These proposals are being promoted with such zeal that the emphasis appears to be on winning the debate rather than establishing good public policy. And to take the theme of winning one step further, I want to take a few moments to share with you who I feel the winners and losers will be under two high profile initiatives currently being discussed in South Carolina and the nation.

Let me begin with President Bush's proposals for the future of Social Security. Although he has not submitted an official plan, we know from his public statements, what he envisions. President Bush wants to invest a portion of the Social Security taxes currently paid by every worker and invest it in the Stock Market. Under this scenario, there could be hundreds, even thousands of winners. Unfortunately, however, there could be millions of losers. And I suspect that is why the non-partisan Congressional Budget Office (CBO) argues that Social Security recipients are better off if we do nothing to the program rather than implementing private accounts.

According to the CBO, if we do nothing Social Security will begin operating at a deficit in the year 2020. At that time the Trust Fund will kick in and Social Security will be able to continue paying 100% of benefits to 2052, after which only 78% of promised benefits can be paid. Under President Bush's plan Social Security will be at deficit in 2018 and will exhaust the Trust fund in 2031.

Social Security was created 70 years ago to provide a safety net for our most vulnerable - the aged, the disabled and their dependents, and some survivors of untimely deaths. Social Security was never intended to be anyone's sole source of retirement income. In is an insurance program, worth over $400,000 for the average worker. In the 6th Congressional District, only 54% of Social Security recipients are retirees. The other 46% are receiving disability and survivors' benefits. They will be the losers under the proposed scenario because they would not have 40 years of contributions invested in their private accounts. The average age of a disabled worker is 51 years old, and a third of all workers in their 20s today will become disabled before they reach the 67 year retirement age.

President Bush has also publicly argued that blacks are shortchanged by the current system because they don't live as long as whites. In reality, African Americans may be the biggest winners under the current Social Security system for a number of reasons.

First, blacks on average earn less than whites and Social Security benefits are indexed to wages with the lowest wage earners receiving the highest rate of return from Social Security.

Second, African Americans tend to be overly represented in jobs that are more likely to induce a disabling injury. Therefore, they currently have a safety net in place to ensure their family is cared for through Social Security benefits.
Thirdly, because they do have shorter life spans, about 1 and ½ years of those of working age, survivor benefits kick in sooner. In fact, according to the Social Security Administration blacks are around 13 percent of the nation's population, but are 19 percent of disability recipients and 23 percent of those receiving survivors' benefits.

Finally, under the President's reform proposal, benefits would no longer be linked to wages but to prices instead. The end result is lower benefits for everyone, in which case the biggest losers would be African Americans because they are disproportionately in jobs that do not expose them to stock options and 401- k type of retirement plans. For them Social Security is a much bigger portion of their retirement income. In fact, for one in three African Americans it is 100% of their retirement income.

But I did say that there could be some big winners. The only people with a guaranteed pay off under President Bush's proposal are those who will collect their investment fees regardless of the success of their investments. Workers would be winners only if the investments on their behalf are sound and they retire at the right time. But they could be big losers because there is no guarantee that they will see a profit on those investments. They could end up losing all of their contributions if they are invested in unscrupulous companies such as Enron, WorldCom or Tyco. And they could choose to retire or be forced into retirement at a time when the market is down or because of some debilitating circumstances at an early age.

The second item on the political horizon I must address is Governor Sanford's proposed tuition tax credits. This plan has engendered as much skepticism as President Bush's Social Security proposal has and for similar reasons.

Governor Sanford wants to take an estimated $234 million, out of the State's budget, to provide tax rebates to families that send their children to private schools. Other states with similar programs report that it is families whose children already attend private schools that are the big winners under such tax cut schemes. The program is promoted as a means to give low-income families a choice of where to send their children to school. But what low-income family can pay the cost of private school tuition out-of-pocket up front, and wait for tax season to receive a portion of that money back? They are certainly the losers in this scenario, another empty promise to help the needy which only benefits the wealthy.

Another red flag in this proposal is the fact that private schools can discriminate, and they do. The parents are the losers under this plan because the choice doesn't belong to them but to the private school. The private schools are the ultimate winners because they can be selective and take only top tier students, who are more often from upper and upper middle income homes. The result of this action is the re-segregation of our educational system, and society will be the ultimate loser if that were to come to pass.

Another big loser under this tax credit scheme is accountability. Private schools do not have to follow accountability guidelines for faculty, or curriculum. There are no private school report cards that let parents know of their children's safety and academic progress. How can parents be winners in this regard?

Finally, the more egregious characteristic of this scheme is its encouragement for businesses to direct their state tax obligations into a private school tuition scholarship fund. In this instance, the state budget loses significant income and businesses can further enrich its higher income employees who send their children to private schools. Just think about it. The Governor wants to use public funds to recruit industry, public funds to locate industry, and public funds to supply needed infrastructure, and when that industry begins to make money, it is allowed to direct all of its state tax liability to private schools for tuition assistance. Now I do not know whether or not such a scheme is unconstitutional but it is unconscionable.

Just as this proposal will severely impact the state's budget, another of Governor Sanford's tax cut scheme has the potential to destroy our state's credit rating. Credit rating agencies, Moody's and Standard and Poor's, have already put South Carolina on notice that if the Governor's income tax cut proposal is implemented the state will jeopardize its AAA credit rating, raising interest rates and putting a greater strain on our state budget.

Governor Sanford's plan to incrementally cut income taxes from 7% to 4.75% over ten years may only kick in when revenues are high, but it prohibits the state from saving for the years when revenue is slow. Imagine your family having a surplus in its annual budget and just giving the extra money away. The following year a family member gets sick and money becomes tight, however, you didn't save for the tough times and now you must go into debt just to cover the family's expenses. This is poor financial planning at best, and at worst puts the state's fiscal health is at stake. South Carolina is consequently a big loser under this plan.

This is a very deceptive scheme because the premise is we should cut taxes for all South Carolinians earning over $12,000 that are assessed state income taxes at the highest rate of 7%. However, the big winners under this plan are the wealthiest. Because an individual's state income tax is based on their federal tax liability, they also benefit from the itemized deductions built into the federal system. In essence, those who make more money and have home mortgage deductions and can make significant charitable contributions actually pay a reduced tax rate compared to the $12,000 wage earner who has no itemized deductions and must pay the full 7% rate.

Another of the Governor's stated goals is to reduce the tax burden on small businesses that pay taxes under individual rather than corporate rates. The S.C. Senate wisely saw an opportunity to target tax cuts just for those businesses rather than the entire 7% tax bracket. This would be a more financially feasible option and small business owners would still be winners under this plan.

There are winners and losers in almost every action taken by our elected leaders. But government's overarching goal should be to protect the greater good. Creation of the Social Security safety net, and equal access to pubic education, are examples of effective programs that were successfully implemented to provide the best opportunities for all Americans. When politicians begin to tinker with the bedrock programs that have made our country great, to promote their personal agendas, the public reacts with distrust. Public education and Social Security are sacred cows, and should never be offered up for sacrifices on anybody's political alter.

Are any of these programs perfect? Of course not. Are radical changes needed to address the challenges faced by each of these programs? Definitely not. If personal agendas and a desperate need to win at any cost are the driving forces behind these initiatives, then I say it is time to step back and assess what price we will pay if these changes come to pass.

People most often look upon Martin Luther King Jr.'s most lasting contributions to the social order as being made through his speeches. But I maintain that more prolific contributions can be found in his writings. And I submit to you today that a passage from King's letter from the Birmingham City Jail is very appropriate for the times within which we find ourselves.

King wrote in part, "that the people of ill-will in our society, seem to make a much better use of time that the people of good will," and therefore "we may be made to repent, not just for the vitriolic words and deeds of bad people, but for the appalling silence of good people." There are a lot of good people in this room and it is time to break the silence.
Thank you very much for having me.

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