only crises facing Social Security
are privatization and low wages
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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
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
Don’t bet your "The Truth Is Out There" poster
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
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
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
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.
"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
Privatization would turn over the Trust Fund’s trillions
of dollars to Wall Street. A few people, undoubtedly, would become
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
"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
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
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
(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
"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
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
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
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
"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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