1115.org

During the Presidential campaign, George W. Bush feigned outrage when John Kerry accused him of plotting to privatize Social Security. But less than a month after the election, one of the issues that is getting the most attention in the press due to its likely appearance in Congress is the President’s Social Security privatization plan. Revisionist history is the new history.

Since most people don’t know how Social Security works, it’s worth explaining. The principle behind Social Security is simple: Most people outlive their ability to earn enough money to support themselves. No country can tolerate having poor elderly people suffering and dying in poverty because they can’t work anymore and were unable or unwilling to save for their retirement. As repulsive as it may be to conservatives and libertarians, sometimes the government must mitigate risk and protect the weakest among us. President Franklin Roosevelt signed the Social Security Act in 1935 to achieve that goal.

Currently, workers and employers each pay 6.2% of each employee’s wages (OASDI on your paycheck) into the system which is in turn paid out to senior citizens. The Bush administration wants to allow younger workers to divert a percentage of that 6.2% into private accounts with which they can buy from an approved list of stocks and mutual funds.

This scheme raises three significant problems:

A) The federal government is not good at approving where pension money should be invested.

Since 1982, under a consent decree with the federal government, the [Teamster's] fund has been run by prominent Wall Street firms and monitored by a federal court and the Labor Department. …in these expert hands, the aging fund has fallen into greater financial peril than when James R. Hoffa, who built the Teamsters into a national power, used it as a slush fund.

B) Diverting any percentage of the OASDI payments adds to the deficit because the government must then borrow the difference to pay benefits to current seniors. Over time, estimates put these transition costs between $2 trillion and $4 trillion. Needless to say, we don’t have that kind of money on hand.

C) Even if you grant that over time, the U.S. markets generally go up, and even if you grant that that trend will continue, there are periodic corrections in the markets. What if you were 60 years old when the crash of 1987 occurred? How about the crash of 2000-2003?

As mentioned before, our society would have to step in and ensure the care of the citizens who lost everything with not enough time to recover. Thus money was wasted on one form of social insurance with more needed.

But we know from watching the Bush administration that the potential dangers of any piece of legislation are outweighed by that legislation’s ability to reward a Republican constituency. Or in this case, a trifecta of constituencies.

Who benefits? People who already own significant holdings in stocks and mutual funds will see the value of their holdings rise with the influx of new money into the markets. Banks and brokerages will benefit from increased trading volume. Movement conservatives will benefit from pulling money out of the Social Security system, the first step in killing the popular New Deal program.

The tactics involved in selling this change to the American public are familiar also. When the administration wanted to go to war, they scared us with images of anthrax vials and mushroom clouds. And the solution ended up being worse than doing nothing at all. Now it’s trumped-up charts showing that Social Security is on its last legs, in danger of leaving millions of seniors without retirement insurance. In reality, Social Security is in good shape for at least 40 more years. With small changes like removing the cap that assures that wealthy people pay a smaller percentage into the system (through a cap on earnings), Social Security would be fully funded indefinitely.

Don’t hold you breath waiting for the media to properly cover this issue or to apologize to Kerry for bashing him after he predicted this was coming.