Political Pragmatist | Socially secure until 2042?

Matt Virgile Columnist

Since President Bush’s re-election last November, his administration has been devoted to its newfound goal to privatize the Social Security system. The President faces, however, nearly unanimous opposition from the Democrats in Congress as well as from many Republicans on the issue. His approval ratings have even fallen from 56 to 43 percent among 18 to 29 year olds, previously the demographic with the strongest support of his plan. Despite Bush’s pleas for the Democrats to put partisan politics aside in order to stop the “crisis,” his opposition stands unyielding to his plan for Social Security reform, viewing it as unnecessary and too drastic.

The issue of Social Security reform is a very sensitive one, as it would affect millions of Americans today and even more in the future. According to a publication entitled The Basics: Social Security Reform by the Century Foundation, a group that conducts research on public policy and economic issues, more than 96 percent of workers pay Social Security taxes and more than 47 million Americans receive checks from the system. Social Security constitutes more than half of the incomes of almost two-thirds of retired Americans and it is the only source of income for one in six. The publication goes on to state that the creation of private accounts would require new federal borrowing amounting to trillions of dollars, which could severely strain the nation’s economic performance in the future, as the national debt is already amounting to trillions.

The report acknowledges that Social Security is facing challenges, mainly due to the huge baby-boom generation which will be eligible for retirement beginning in 2008. This will hurt Social Security because a smaller share of the population will be working and contributing taxes to the system relative to the number who will be collecting benefits. However, it also claims that the President is making the situation out to be much more dire than it actually is and that there are many unstated negative consequences of privatization.

In another publication entitled 10 Myths About Social Security, Century Foundation Vice President Greg Anrig, Jr. debunked many of the President’s claims about the supposed “crisis” of Social Security and exposes the dangers of privatization. He stated that the program is believed to be able to pay benefits in full until 2042, and some groups predict that it may even last until 2053 or later. He also argued that some projections for Social Security’s shortfall in 2042 are estimated at $3.7 trillion, which could be paid for by simply canceling just one-third of the Bush’s administrations tax cuts enacted in 2001 and 2003, which would cost $11.6 trillion if made permanent. In addition, Anrig disproves the President’s claim that Social Security’s problems will begin in 2018, when Bush claims that trust funds will be gone and benefit obligations will surpass the payroll taxes. Anrig states that the trust funds will amount to $5.3 trillion at that time, and just the interest on the trust funds’ Treasury securities will be enough to finance payments for another decade.

The claim that there is an emerging “crisis” would be better applied to privatization than to the current state of Social Security, according to Anrig, who states that the supposed “benefits” of privatization are full of half-truths and distortions. While Bush’s specific proposal is still unknown, the President’s Commission to Strengthen Social Security laid out three possible plans in 2001 for privatization, one of which is widely believed to be President Bush’s current plan. This plan consists of a cut in promised benefits by switching from a wage-indexing to a price-indexing formula, which will reduce the wage-replacement rate each year for new retirees. Anrig stated that the diverting of payroll taxes into private accounts will force Social Security to rely on interest from trust funds to pay benefits starting next year, and these trust funds could be exhausted well before 2020. Also, the 2004 Economic Report of the President found that this proposal would raise the federal budget deficit more than one percent of GDP higher every year until 2036, when it will amount to an astronomical 23.6 percent of GDP, causing the debt burden for every American to be $32,000 higher. Most frightening of all, a July 2004 Congressional Budget Office analysis of this proposal found that nearly all age groups at all income levels born from the 1940s until 2010 would do worse on average under the proposed system. Indeed, there is a true “crisis” emerging under privatization.

Since privatization won’t work, what alternative methods do we have to strengthen Social Security? Anrig proposed that the best approach would be through modest benefit cuts and revenue increases, without increasing federal deficits. Among these are slightly reducing early retirement benefits, including lower-salary years of workers in calculating their retirement benefits, raising the cap on earnings subject to the payroll tax, including all state and local workers in the program to increase revenues, or changing the system so that workers with high income have a smaller share of their pre-retirement earnings replaced by Social Security. Anrig stated that “any combination of such changes would strengthen the system’s long-term finances while preserving the features that have made it so successful.”

At the moment, critics are skeptical that Bush’s plan will be passed, due to his opposition in Congress. In addition, according to a USA Today/CNN/Gallup Poll from March 20, only 37 percent of Americans said they support the President’s efforts to privatize Social Security. Ironically, it appears that Bush’s plan may backfire and may end up benefitting the Democrats. In a March 10 column of The American Prospect, Anrig referred to Bush’s Social Security plan as “The President’s Gift” to Democrats, because their rigid opposition has created a unity in the Party that has been unprecedented since Bush first took office. He states that if the Democrats stay unified against Social Security reform, then it will show the American public that liberals want to serve everyone and they want to restore public trust in government. It will be interesting to see if Anrig’s predictions are correct, and whether the Democrats can hold together to defeat President Bush’s Social Security plan and regain the support of Americans.

In short, should this plan be passed, it will be our generation that suffers and bears heavy burdens in the future. Anrig’s report shows that today’s young adults will be faced with the skyrocketing debts and other destructive consequences of Social Security reform. Privatization is the problem with Social Security, not the solution.