PLANS FOR PRIVATIZATION
By Rep. Michael H. Michaud
As we head into the new year, the elected officials in the federal government are starting to plan for the future. On December 16th, the President convened a White House economic summit to discuss his policies for the American economy. I applaud the President for focusing on the economic trouble that the country faces. However, one subject that was discussed at his summit again and again is of much greater concern--privatizing Social Security.
While I agree that the Social Security system is far from perfect today--and there are certainly long-term funding problems that we can start to fix--privatizing the system takes us in exactly the wrong direction.
First, it is important to realize that we are not in a crisis. The Congressional Budget Office, the nonpartisan accounting wing of the U.S. Congress, has said that the Social Security Trust Funds will be solvent for almost 50 years.
So while it is important to address the long-term health of the program before we do reach a crisis, we do not need to hurry ourselves into a change that will endanger the entire program just because we are in a rush to act. When proponents of privatization say we must act at this instant (meaning: enact their plan immediately), it simply is not true.
Second, it is important to understand that privatizing Social Security by turning over the savings of younger workers to personal investment accounts means that these younger workers will no longer contribute to the system. The Social Security system is in a balance--today's workers pay for today's retirees; and when the current workers become retirees in the future, they will then in turn be supported by the next generation. So, if today's workers leave the system, there will be no funds for today's retirees.
That is what people mean when they say that privatizing leaves a huge funding gap in Social Security. If the younger workers leave the system, there are only two options: cut benefits for today's retirees, and/or support today's retirees with deficit spending from the federal budget.
Either alternative is bad. The President says he does not want to cut benefits. At the same time, the leaders of Congress just had to force through an increase in the federal government's legal debt because the country is now at around $8 trillion in debt. The cost of making the transition to private accounts in Social Security is estimated at over $2 trillion. If we go through with the privatizing plan, something has to give.
Finally, people should know that turning the savings of younger workers over to the stock market through private accounts will not necessarily make them better off. Unlike the current Social Security system, individual accounts cannot provide income that is free from the risks of the stock market. What if workers had invested in Enron a few years ago, when it was the hottest stock out there? A system where workers can lose their entire retirement in one unlucky decision is not Social Security.
Retirement income needs to be safeguarded, it needs to be free from market fluctuations, and it needs to be guaranteed. In order to provide such a guarantee, I authored a Constitutional Amendment last year that preserves Social Security for generations to come. My bill would prevent privatization of the Social Security system while ensuring that money put into the system stays there and is not subject to government raiding.
We should take privatization off the table and focus on fixing the problems, which are manageable. We should strengthen the current system over time to prepare for the long term, while fixing current problems--starting by repealing harmful policies like the windfall elimination provision and the government pension offset that penalize certain Mainers for choosing public service as a career.
As we look toward the future, we can face the challenges of Social Security. We must work to protect the benefits of current and future retirees, and avoid risky schemes that lead us down the wrong path.