The Privatization of Social
Security
The Social
Security Act was signed into law in 1935 by Franklin D. Roosevelt. In 2005 President
George W. Bush went on a cross country campaign to promote his ill conceived
plan about ending the program and setting up private accounts.
The privatization
plan, headed by Karl Rove, would be a windfall for banks. In fact, banks would
make billions on the plan that would set up private accounts with the money
invested in various stocks and funds. And if the stock market took a dump, so
would people’s retirement accounts.
Almost
Every President since FDR, have raided some of the surplus money in Social
Security to pay for other programs. In Bush’s case, he has taken every
dollar of surplus and used it to pay for his tax cuts for the rich. Every year
Social Security has had a surplus (money left over after payouts), and in 2003,
Social Security had a surplus of $139 billion, which Bush redirected to help
pay for his tax cuts. Bush has redirected the surplus every year since.
In 2000,
Al Gore, while running for president said if he were elected, the money
collected for Social Security would be placed in a “Lock Box,”
meaning that the Social Security money could only be used for Social Security
programs, which would insure its solvency, but Republicans and right-wing talking
heads made jokes about his use of the words, “Lock Box.”
Currently,
people are allowed to have Individual Retirement Accounts (IRA’s).
People are also allowed to contribute to what are called 401k retirement
accounts. So what is it with Bush’s push to privatize Social Security
under the guise of private accounts?
Maybe it
is because he wants to end the program and use the money for his ill conceived
wars, while at the same time, making billions for his corporate bank buddies.
During
Bush’s nationwide stump to promote his plan, he said that those who are
50- years-old or older don’t have to worry; they would still receive
their Social Security benefits. But everyone under 50 could opt out and start a
private account with any of the pre-arranged banks that they would set up.
The banks
wrote the legislation that would be submitted if the privatization idea ever
moved forward. If you recall, it was the pharmaceutical companies that wrote
the Medicare Plan D (drug program), which does not allow the federal government
to negotiate drug prices, and allows the drug companies to raise the cost of
drugs every year.
The Bush administration
says that there is a crisis in the Social Security system and that it will be
bankrupt by 2042. The Democrats say Social Security can be fixed without
introducing the risks and costs of private accounts. They prefer a mix of
raising the payroll tax rate, increasing the cap on the payroll tax above
$90,000, and boosting the retirement age.
Under the
White House Social Security plan, workers who opt to divert some of their
payroll taxes into individual accounts would ultimately earn benefits more than
those under the traditional system only if the return on their investments
exceeds the amount their money would have accrued under the traditional system.
"You'll
be able to pass along the money that accumulates in your personal account, if
you wish, to your children . . . or grandchildren," Bush said in his State
of the Union address. "And best of all, the money in the account is yours, and the government can never take it away."
What Bush
did not detail is how contributions in the account would reduce workers'
monthly Social Security checks. Under the system, described by an
administration official, every dollar contributed to an account would be taken
from the guaranteed Social Security benefit, with interest.
If a
worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on
investments, the account would grow to $99,800 in today's dollars. All of that
money would be the worker’s upon retirement. But guaranteed benefits over
the worker's lifetime would be reduced by approximately $78,700 — the
amount the worker would have contributed to Social Security but instead
contributed to his private account, plus 3 percent interest above inflation.
The remainder, $21,100, would be the increase in benefit the worker would
receive over his lifetime above the level he would have received if he stayed
in the traditional system.
Under the
system, total benefit gains may be minimal. The Social Security Administration,
in projecting benefits under a partially privatized system, assumes a 4.6
percent rate of return over inflation. Thus gains in an account would be offset
by a reduction in guaranteed benefits equal to 70 percent of the account's
balance.
President
Bush's Social Security Commission has provided three options for reforming the
system. All include private accounts. Two of them also include some cuts in benefits
to move the program toward solvency.
There are
a number of proposals from a variety of experts that make Social Security
solvent over the next 75 years, but do not include private accounts. Here are
some highlights from a proposal by economists Peter Orszag
of the Brookings Institution and Peter Diamond of the Massachusetts Institute
of Technology.
· Gradually raise the payroll tax by
just under 1 percentage point for both workers and their employers.
· Add a 3 percent to 3.5 percent tax
on high-wage workers. The tax would be levied on salary amounts above the
maximum taxable level, currently $87,900.
· Make some cuts in benefits for
workers currently less than 55-years-old. For instance, a worker currently 35-years-old
would have the benefits promised under current law reduced by 4.5 percent. But
they would still be higher, in real terms, than benefits for current retirees.
As things
stand at the moment, President Bush has no chance of pushing his Social
Security plan through. Bush has said on a few occasions that the removal of
troops from
It seems
to me that the Democrats have the most logical plan to solve Social
Security’s woes.
David Phillips is
a Vietnam Era Veteran, a Democratic Party Activist, and David is also the
Publisher and Editor of the online political magazine YodasWorld.org
E-Mail Questions
or Comments: oneyoda@aol.com