An electrician friend of mine recently lamented that he will "never be able to retire. By the time I reach retirement age, Social Security will be bankrupt."
Such fears are widespread, especially in communities where many are self-employed or benefit-rich jobs are dying. There are reasons baby boomers should worry about their future, but Social Security is not one of them. Indeed, exaggerated fears about Social Security -- and the steps taken to "fix" the system -- are a bigger reason for concern. These fears, as much as any election results, are a testimony to the domination of our economic agenda by the political right.
Social Security has always raised the ire of market devotees. Viewed as a paternalistic intervention in a free market, the program achieved such popularity that even Republicans eventually dared not oppose it. Unlike welfare, social security benefits poor, working class and middle class professionals alike. Even my local dentist recently bragged that he now collects his Social Security pension.
Secondly, the program is extraordinarily simple and efficient. Less than one out of every hundred dollars paid into the system goes for its administrative overhead. Our much-celebrated private sector HMOs or life insurance companies cannot come close to such levels of administrative efficiency.
And finally, Social Security is a public policy success. Levels of poverty among elderly Americans have declined substantially due in large measure to Social Security.
So why is Social Security in crisis? Crisis is perhaps the most overused term in political punditry. Crises are fundamental turning points, and radical transformation is almost always at least as much a function of the values and preoccupations as of changes in the overall landscape. Even in an era of conservative dominance, a program as successful as Social Security cannot be attacked frontally. Most conservatives no longer complain that it is paternalistic, though this long-standing criticism has merit. Just like truancy laws or taxation for public schools, social security mandates that all of us set aside resources to insure vulnerable segments of the population.
The new claim is that this program is dangerously underfunded because four decades from now the total cost of all benefits paid out will have exceeded its total revenues. Even this futuristic horror scenario is based on projections of economic growth slower than at any point in our recent history.
By such a standard, how are we to judge the war in Iraq or Homeland Security? These entail vast, open-ended increases in government spending, yet few worry about the fate of the Republic. In the case of Social Security, even if no changes were made to existing benefit levels and no increases in payroll taxes enacted, the fund could pay 75% of promised benefits for another 35 years beyond its so-called bankruptcy. Would that Enron had achieved such a standard. And for far smaller increases in taxation than either Iraq or Homeland Security require, Social Security could be placed on a sound foundation as far as the eye can see.
Imagine a family earning $60,000 a year. They and their employers now pay about $8000 a year in payroll taxes. In a worst-case scenario, with the economy making below historical average productivity gains, fifteen years or so from now they might have to fork over another $500 a year in taxes. For this sacrifice, their social security -- and their children's -- will be completely secure.
If any modest fixes are needed, a far better one would be to remove the gap on income subject to Social Security taxation. It is both unjust and absurd for million-dollar-a-year executives to pay a smaller portion of their income in Social Security taxation than my electrician friend. But even if my friends get stuck, $500 extra may sound burdensome -- until one recognizes that even with slow growth, workers will still be enjoying far higher after-tax incomes than today. (If I told my readers I would increase their income 50% if they would give me 1% of their new gains as a bribe, almost everyone would sign on.)
In any case, as both Dean Baker and Paul Krugman have pointed out repeatedly, if the US economy is so tenuous as to require increases in Social Security taxation, any hope of rescuing retirement through privatization is fatally flawed. Over the long haul, the stock market cannot do well in a stagnant economy.
Nor do privatized retirement accounts represent all that much personal freedom. Mr. Go It Alone must still place a certain percentage of yearly income in approved investment vehicles. Government will define what these will be and bureaucrats will have to monitor compliance. (Living here in Coastal Maine, I would be inclined to invest in expanding my home and renting out the added space in the summer.)
Unless the new world of private retirement accounts is like Lake Wobegon, where everyone's children are better than average, this new world will have many losers and winners. I make few predictions in this column, but I have two here. With vast sums to be invested by citizens of varying degrees of expertise and interest, there will be major abuses in some financial products. A whole new regulatory structure will be created. Regulation will not be the product of demands by socialist intellectuals but a result of outrage of ordinary citizens. A paradox of Social Security privatization will be a more complex and intrusive system than anything we have yet experienced.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email firstname.lastname@example.org.