Don't let the political rhetoric surrounding Social Security fool you. Privatization of the popular program is not dead, not by a long shot.
That's why progressives need to remain vigilant in defending the program against attempts to hand Social Security over to the stock market.
Social Security is perhaps the most effective federal program in our country's history. Created by President Franklin Delano Roosevelt in 1935 as a safety net for workers, it now serves 45.4 million people, providing 40% of Americans age 65 and older with about 80% of their income, according to the Economic Opportunity Institute. The typical retired couple, according to the EOI, receives two-thirds of their income from Social Security.
Critics and supporters of the system both have said the system is in crisis, that the money coming in likely would not cover the checks that would be cut to the growing number of retirees. A so-called "baby-boom bubble" would start running a shortfall sometime around 2016.
Critics want to use this baby-boom bubble as an excuse to dismantle the program, to hand the money over to the financial markets, which would then subject retirement accounts to the whims of these markets. That's the gist of the report issued by a Bush commission on Social Security's future. According to the report, dire consequences will occur unless changes are made to the retirement system. It said that most future retirees are slated to receive higher benefits than the system can afford.
"We're all on the Titanic as it relates to Social Security and people are telling us it's the safest ship afloat,'' Robert Johnson, a Democratic member of the commission, told the Associated Press. "But we are heading for a disaster.''
However, the suggestions crafted by the commission -- cutting benefits, funneling money into private accounts -- are more likely to create problems in the future than they are to avert any potential shortfalls.
The commission offers three options:
Option 1 would allow workers to invest 2% of their payroll taxes in personal accounts and would reduce benefits by the total value of the personal account, compounded at a 3.5% annual interest rate. However, the commission said the plan would not solve the future funding problems and eventually would require either benefit cuts and/or tax increases or other revenues to offset a projected 28% shortfall by 2052.
Option 2 would allow workers to invest up to 4% of their payroll taxes in a personal account up to $1,000; cut benefits by the total value of the personal account, compounded at an interest rate of 2%; change the way benefits are calculated to slow their growth; and require government funding of $1.3 billion to $71 billion.
Option 3 would require workers to save 1% of their annual income to qualify for a personal investment account. The federal government would then contribute the equivalent of 2.5% of annual income, up to $1,000. Low-income workers would have their contributions subsidized by a refundable tax credit. The plan also calls for benefits to be cut by the total value of the personal account, compounded at an annual interest rate of 2.5%, offers incentives for postponing retirement and penalizes early retirement. It would require new federal spending of $8 billion to $55 billion.
It is important to remember that the commission was appointed in the spring by a president who promised to gut the Social Security system by instituting private accounts. This commission was given one charge: Privatize Social Security. Its three plans do that to varying degrees.
They do so at great costs to workers and taxpayers. All three plans require some kind of tax-funded subsidy or benefit cuts, which the Economic Policy Institute, a liberal economic think tank, says will not have the desired results.
However, a report issued by the EPI says the commission's proposals do not account for cost of moving from the traditional benefit plan to the proposed accounts.
It also points out that cutting benefits and changing the way benefits are indexed to slow their rate of growth only will have a moderate impact on the projected shortfall while harming retirees.
EPI is calling for a different approach, one that relies on new revenue generated by the removal of the cap on taxes paid annually into the system. Under the current rules, someone earning $200,000 pays the same in payroll taxes as someone earning $80,400. Eliminating the cap would affect fewer than 7% of wage-earners - all of whom are at the upper end of the income strata -- while covering more than three-quarters of the expected shortfall, the EPI says.
At the same time, the Center for Economic and Policy Research in Washington is questioning the need for a major overhaul. Dean Baker and Mark Weisbrot, authors of the book Social Security: The Phony Crisis, wrote in an opinion piece for the Common Dreams News Center Web site that Social Security is relatively healthy and can "pay all promised benefits for the next 37 years." The goals of the commission and the administration had little to do with saving Social Security, they wrote.
"The financial industry wants to get its hands on Social Security for the huge fees and commissions it could charge," they wrote. "The anti-government ideologues would love to dismantle Social Security, the nation's most popular and successful social program. To advance their cause, they have grossly misled the public about the state of Social Security's financial health."
Nothing is likely to happen in the short term. In fact, most observers believe Washington will not move on Social Security until after the mid-term elections in November.
"The exact timing of when Congress may be able to move Social Security legislation is clearly up in the air, but many in Congress do not think it can happen before the (2002) election," White House spokesman Ari Fleischer told the New York Times.
This does not mean progressives should sit back and wait until Social Security returns to the political radar screen. If we do that, Social Security is doomed. Most polls show that Americans believe the forecasts of the reformers, which means the folks who want to hand Social Security off to the markets have an advantage.
We need to change the terms of this debate, to show Americans -- especially those younger than 30 -- that major reform is not only unnecessary, but dangerous, that it is little more than a cash cow for the investment industry.
Hank Kalet is a poet and managing editor of The South Brunswick Post and The Cranbury Press in New Jersey. He can be reached via e-mail at hkalet@hotmail.com