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The Unbearable Bull
About Social Security

The unbearable bull about Social Security ...

The only crises facing Social Security
are privatization and low wages

More on Social Security: Our UE Political Action page has links to more info, including our on-line Social Security workshop.

Is Social Security facing a crisis? Well, yes and no. The system itself is sound and solvent, capable of providing for future generations of workers with only minor adjustment.

The real crisis facing Social Security is the plot to privatize the system and turn the trust fund’s trillions over to Wall Street.

The privatizers start their arguments with indisputable statements of fact: People are living longer. Today’s workforce supports a growing number of Social Security recipients. In 1995, there were almost five people under 65 for every one person over retirement age. Due to falling birth rates, the ratio will be nearly three workers for every retiree in 2030.

Eventually, they say, Social Security will pay out more than it takes in. The Trust Fund will be spent down sometime in 2030 or thereafter. We then will reach a point where the Social Security tax covers only 75 percent of benefits.


How bad will it get? Is it true that a member of Generation X has a better chance of riding in a UFO than collecting Social Security?

Don’t bet your "The Truth Is Out There" poster on it.

First of all, the system is sound for the next 35 years. Social Security will be able to pay 100 percent of benefits through 2034. That projection has been improving, without any tinkering by Congress.

The trustees’ projections show that in its worst year — 2070 — the current program will be able to pay 69 percent of benefits from payroll taxes, without touching the trust fund surplus.

If the U.S. economy enjoys a long-term growth rate of 2.5 percent — a reasonable, conservative assumption — there will be no crisis. (The average over the last 75 years has been nearly 3.5 percent.)

Jack Kemp, President Bush’s Secretary of Housing and Urban Development, said as much before the House Ways and Means Committee in January: If we continue having even modest economic growth, there is no reason to believe the Social Security system will reach a crisis.


Scrap the Cap!


Shouldn’t we do something now, just in case? Is there an easy, worker-friendly way of strengthening Social Security?

Yes. Eliminate the payroll-tax earning cap.

Social Security is funded by a 6.2 percent tax that both workers and employers pay. This tax is paid on wages and salaries up to $72,600.

Millionaires and billionaires, bankers and corporate executives, pay a minuscule portion of their income in Social Security taxes. GE CEO Jack Welch earned more than $27 million in 1997 in wages, bonuses and stock option grants but paid Social Security taxes only on the first $72,600.

Having everyone pay the same Social Security tax by scrapping the cap would put an extra $38 billion a year into the Trust Fund, wiping out the shortfall some are projecting.

The Labor Party backs elimination of the cap and has a further proposal: raise the payroll tax on employers, but not workers. Workers have seen a net drain on their incomes for the past couple of decades. This would be one way to start tipping the balance in the other direction.

By scrapping the cap and raising taxes on employers, there will be no need to raise the retirement age, monkey with the cost-of-living index, increase payroll taxes on workers — or privatize. Period.

"If we merely wanted to ensure solvency, we could accomplish the goal as we have in the past," admitted a prominent privatization promoter in a moment of candor. But Sen. Rick Santorum (R., Pa.) and the big business interests he serves are not interested in "merely ensuring solvency." Their goal is elimination of the Social Security system.

For one thing, there’s administrative fees. Right now, administrative costs for Social Security are less than 1 cent per dollar paid out in benefits. This is much lower than the average administrative costs of 12-14 percent for private insurers. In Chile, which instituted a system of mandatory private savings accounts during the Pinochet dictatorship, administrative costs exceed 20 percent. Retirees are forced to pay those exorbitant costs.


Did somebody say McDonalds? Wall Street investment houses are as excited about privatization as a pack of hungry youngsters thinking about Mickey D’s.

And for good reason: Wall Street would rake in $240 billion in fees alone in the first 12 years of privatization.

According to economist Christian Weller, that’s enough to give 20,000 fund managers an annual salary of $1 million each. "No wonder," comments Labor Party Press, "the financial industry has spent millions of dollars of late to promote the idea of Social Security privatization."

DuPont Co., Morgan Stanley & Co. and others have donated nearly $1 million to Economic Security 2000, a group formed to develop support for privatization. Businesses and wealthy individuals have provided a $2 million budget to "Citizens for a Sound Economy" for media ads. Insurance companies and brokerage firms have given $2 million to the Cato Institute to fund research conferences and other activities for members of Congress and their staff.

While administrative costs would give investment firms billions of dollars, these same costs would wipe out much of the benefit to low and moderate income investors in a partially or wholly privatized system.

Privatization would turn over the Trust Fund’s trillions of dollars to Wall Street. A few people, undoubtedly, would become mind-bogglingly wealthy.

What about the rest of us?


The great success of the present system is simply that the elderly and disabled and survivors of deceased workers are guaranteed, and receive, a benefit check every month.

Privatization of the Social Security system would be a costly gamble for the nation and individual workers.

After all, in the stock market, returns for each and every investor are not like those fabled kids of Lake Woebegon: all above average.

"We are in a 17-year-long ‘bull’ market, so it’s easy to forget that there are long stretches where people actually lose more money than they invested in stocks," writes Abby Scher in Dollars and Sense magazine. "During four 20-year periods in this century — from 1901 to 1921, 1929 to 1949, 1962 to 1982 and 1964 to 1984 — investors cashing out would have lost money on their initial investment. Retirees can’t wait five or ten years for a bull market to return."

In a privatized retirement system, each individual bears the risk. Some will pick the wrong stock. Some will retire when the economy cools. And if you retire during a stock market crash, well, tough luck.

With privatization the only guarantees are that many will suffer and the rich will get richer.


This is why the privatization arguments are phoney.

Supporters of privatization point to today’s booming stock market with its fantastic returns on investment.

They also cite the shortfall in Social Security funds in the 2030s forecasted by the Social Security trustees. Remember, this is a prediction based on the trustees’ pessimistic assumption that the U.S. economy will practically grind to a halt in the next century.

Not many of us will be getting rich if the nation faces 75 years of depression.

"This is the fundamentally fraudulent part of the argument that we can ‘save’ Social Security by investing it in the stock market," writes Ruth Conniff, Washington editor of The Progressive magazine: "A booming stock market that produces good returns for retirement, and a massive economic slowdown that would make the Social Security trust fund run dry, simply can’t happen at the same time."

(On the other hand, if the economy doesn’t go belly-up, there’s no Social Security shortfall.)

But the fraud gets worse. If Social Security is privatized and the economy goes bust, Wall Street is counting on a bailout that would dwarf the Savings and Loan fiasco of the 1980s. A bailout workers would pay for twice — through tax dollars and diminished retirement income.


The potential for this kind of Social Security crisis should remind us of why the system was created in the first place. The stock market crash of 1929 led to a long, severe, economic depression that threw millions out of work. The unemployed, disabled, retired, widows, single mothers and their children suffered terribly. In 1935 Congress adopted the Social Security Act, which created our federal old-age pension system, disability payments, unemployment compensation and Aid to Families with Dependent Children (which has since been dismantled).

Social Security has dramatically reduced poverty among the elderly and disabled. An unacceptable 12 percent of seniors now live in poverty — but without Social Security, 42 percent of all elderly would fall below the poverty line. About two-thirds of the elderly rely on Social Security to provide more than half their retirement incomes. Social Security provides the only pension-type income for six out of 10 workers in private industry.

With all its money in one pool and invested in one place, Social Security delivers its benefits with greater efficiency than the private sector.

"Social Security is patterned after an insurance plan for a reason — it is intended to pool, and thus reduce, risk," writes Abby Scher in Dollars and Sense. "It is not a lottery."

This is why the argument "you can get a bigger return on your investment in the stock market" doesn’t apply. Social Security isn’t an investment scheme. It’s social insurance, providing retirement income for those who live long enough to need it. It’s a commitment we make to each other.

What kind of society decides the quality of life for the old and infirm based on luck — and having a good broker?

"Privatizers want to make the question of enough retirement income a private investment issue, while Social Security makes it a public issue and a right," says UE Research Dir. David Alexander.


Other than outright greed, this is the reason big business wants to destroy Social Security.

Multimillionaire and former Delaware governor Pierre DuPont argues that privatization would "change the nature of American politics in the next century. Once all Americans realized that their well-being depended on the well-being of the economy," he says, "their interests would focus on more effective markets instead of bigger governments."

In this sense, says UE Genl. Sec.-Treas. Bob Clark, the real issue is power. Like unions, Social Security restricts the bosses’ ability to control our lives, he says.

In a way, the real Social Security crisis has been caused by the corporations’ success in weakening unions and lowering our living standards.

"Median income has fallen for 20 years, but Social Security privatizers say the problem is our aging population," says economist Mark Weisbrot of the Preamble Center. "The real problem is present trends in income distribution. If we have growth with higher wages — not growth with stagnant wages as we’ve had since the 1980s — that would take care of the Social Security shortfall."

The problem is not that there will be fewer young people paying into the Social Security system, he says. The problem is that young workers aren’t earning enough to make a significant contribution. If earnings go up, so will Social Security funds.

Stronger unions. Stronger Social Security. A better future for working Americans.

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