On Aug. 14, 1935, President Roosevelt signed the Social Security Act into law, so this Aug. 14, we celebrate the 70th anniversary of Social Security, a program that has dramatically cut the poverty rate for seniors and today provides a guaranteed income for over 48 million retirees, families of workers who have died, and disabled people.
The Social Security program represents a three-part promise between generations of Americans: (1) that no one in America should have to live in poverty after a lifetime of hard work, (2) that children whose parents die should receive support, and (3) that disabled people should not have to suffer extreme deprivation if they can no longer work. This promise has been kept for 70 years, up until now, when the Bush administration and many members of Congress are trying to privatize it, using scare tactics, lies, and deception to convince the public that the system is going broke.
In fact, the Social Security system is solvent. According to the Congressional Budget Office, if no changes are made to the system, Social Security will be able to pay 100 percent of benefits until 2052 and 80 percent of benefits after that. Much is made of the large population of baby boomers (people born between 1946 and 1964) who will be retiring in the next decade, but in fact, the problem of paying benefits to the baby boom generation was solved back 1984, when Congress raised the Social Security tax to create a trust fund to pay for the baby boomers’ retirement benefits. There is now $1.4 trillion in the Social Security trust fund. By 2018, it will grow to $5 trillion. So the baby boomers are taken care of.
What is true is that Social Security will probably have to be adjusted again to accommodate the realities of the 21st Century in which people are living longer and producing fewer workers than in 1935. But this will not require a radical reform of the system. The Social Security program can be funded indefinitely either by raising the $90,000 cap on income that is currently subject to the Social Security tax or by repealing the 2001 tax cuts that benefit individuals who earn more than half a million dollars a year, or by a combination of these two strategies.
Social Security is currently a social insurance program with a guaranteed benefit. How much a beneficiary receives depends on how much the worker earned and how long he or she worked. The check comes in the mail every month, no matter how the economy or the stock market is performing. The average monthly benefit adds up to about $11,000 per year.
Private accounts—the idea of letting workers divert up to one third of their Social Security contribution into mutual fund accounts—will be bad for most Americans. First, this would take money out of the system, not put it in. Social Security benefits could be slashed by as much as $9,000 per beneficiary per year.
Second, the risks are too great. What happens if the market is down when you are ready to retire? If you don’t pick the winning stocks? If the market crashes? Right now, there are already plenty of opportunities for people to invest excess income in tax-deferred retirement accounts through 401Ks and IRAs, knowing that no matter what happens with the stock market, at least they will be able to survive on the guaranteed benefit of the Social Security program that we have today.
Third, disabled workers would lose out in a big way, because even under the best of economic circumstances, a private account would have to accumulate over a full working life to generate sizable benefits. Workers who become disabled after 10 years of work would have almost nothing for themselves and their dependents to live on. Fourth, private accounts would increase the deficit and leave future generations with a huge debt to pay off. The estimates for the conversion cost are between $2 trillion and $5 trillion; this is in addition to the $8 trillion deficit the government is currently running outside of Social Security. The deficit is only one of the many reasons that young people, much more than retired people and baby boomers, should be concerned about what happens to Social Security. If you are young and wonder what all this has to do with you, check out www.rockthevote.com/socialsecurity/whycareaboutss.php.
While the Bush administration touts private accounts as giving individuals control over their own investments, the fact is that there would be tight restrictions on the mutual funds that the public would be allowed to buy, making it extremely unlikely that the accounts would produce anything close to the great returns being promoted to sell this scheme to the public. In addition, the administration suggests that people could pass money that accumulates in the accounts on to their heirs, but this privilege would only apply to rich people. Low-income citizens would be required to purchase annuities, which provide a guaranteed monthly payment for life but expire at the death of the beneficiary.
So if everyone loses with private accounts, who wins? Wall Street brokers, who are heavily funding the privatization campaign with a lot of misinformation, because they stand to make millions in the fees and commissions that would be generated by the private accounts. Compare this to the less than 1 percent in administrative costs for the Social Security program that we have today.
If this all is beginning to sound familiar, it is because the privatization of Social Security is yet one more example of the right wing’s reverse-Robin-Hood policy of stealing savings from working-poor and middle-class citizens, who need these funds to stay out of extreme poverty when they retire, and using it to fund yet more “tax relief” to support the ever more opulent lifestyles of the wealthy. This is why many Americans plan to celebrate Social Security’s birthday by letting their Congressional representatives and Senators know that they oppose private accounts and benefit cuts and support raising the $90,000 cap to ensure that Social Security is will be there for all of us.
Lynn Davidson is a spokesperson for Social Security Action, a nonpartisan group of Bay Area citizens who are concerned about Social Security. Our e-mail address is SocialSecurityAction@hotmail.com.