Throughout his Presidential campaign, George W. Bush indignantly denied that he intended to privatize Social Security. Whenever John Kerry would level such a charge, the Republicans would squawk about Democratic scare tactics.
But it didn't take Bush long after November 2 to announce that he did, in fact, intend to privatize at least part of Social Security. At his first press conference after the vote, less than forty-eight hours after the polls closed, Bush said that "reforming" Social Security was one of his top priorities.
His friends on Wall Street could not have been happier. Allowing people to invest even a small fraction of their Social Security taxes in the stock market would bring huge profits to investment companies.
And it is these groups--along with recalcitrant Republicans who have waited seventy years to invalidate the New Deal--that have been behind the privatization effort all along.
As far back as 1996, The Wall Street Journal did a story with the none-too-subtle headline, "Privatizing a Portion of Social Security Could Shower Billions on Mutual Funds." That article noted that this "could be the biggest bonanza in the history of the mutual-fund industry."
These same companies began a massive PR campaign to convince the American public of the need for privatization. Robert Dreyfuss, writing in Mother Jones that same year, reported that "investment companies and the Fortune 500 are funneling millions of dollars in seed money to think tanks, 'grassroots' organizations, and politicians friendly to the ideas of privatization."
These investments would be well worth it if Bush's privatization plan goes through. Wall Street companies stand to gain as much as $75 billion a year, according to Kenneth Worthington, an analyst with CIBC World Markets. He wrote a recent report entitled, "Bush's Plan for Social Security Reform Could Be Electric for Financials."
To execute this tingling money grab, Wall Street investment houses and anti-New Deal Republicans have sparked an outcry about an impending crisis in Social Security, a crisis that demands immediate action. So successful have they been that many pundits and journalists have now adopted this crisis as a given. Tim Russert on Meet the Press prattles on about it as though doomsday were at dawn. Even a recent article in The New York Times by Richard W. Stevenson that was critical of Bush's privatization plan included the Chicken Little line that Social Security is "about to come under intense financial strain."
Do not be deceived.
The crisis is confected. Social Security is not about to go bust. According to a study by the Social Security trustees, the system is solvent until 2042. A General Accounting Office study extends that solvency to the year 2052. In either case, the so-called crisis is decades away.
Russert and others contend that Social Security won't be able to handle the baby boomers, but as Mark Weisbrot of the Center for Economic and Policy Research has pointed out, "most of the baby boomers will be dead" by 2042.
And it's not as though Social Security's coffers would be bare when that year finally does arrive. Instead, Social Security would still be able to meet 75 percent of its obligations to its retirees.
To make up the last quarter would be relatively easy.
Dean Baker and David Rosnick, in a recent study for the Center for Economic and Policy Research, say that one alternative is "to raise the ceiling on taxable wages." At the moment, they note, "no Social Security taxes are paid on income earned above $87,900."
That's right: If you're making $87,900 a year, you are paying the exact same amount in Social Security taxes as Bill Gates is. Raising the ceiling even to $110,000, Baker and Rosnick say, would eliminate a huge chunk of the deficit that will arrive either in 2042 or 2052.
Or, they say, Congress could simply increase the Social Security payroll tax by a small amount. "Social Security can be made solvent throughout its seventy-five year planning period with a tax increase that is less than one quarter as large as the one in the '80s," Baker and Rosnick write.
Another way to meet much of the need down the road would be to keep the estate tax on the largest estates and put that revenue into the Social Security Trust Fund. "Adopting this approach would reduce the size of the Social Security shortfall by about 40 percent," says the Center on Budget and Policy Priorities, which bases that figure on a report by the General Accounting Office.
Finally, new state and local government employees could be required to pay into the Social Security Trust Fund. Almost seven million state and local government employees don't contribute to--and are not recipients of--Social Security today because they are covered by their localities' public retirement plans. But if the new employees joined Social Security, they would bring new revenues into the pot and would reduce the long-term deficit by more than 20 percent, according to Edith U. Fierst, who was a member of the Clinton Administration's Social Security Advisory Council.
Instead of proposing any variety of prudent fixes along the edges, Bush wants to take a sledgehammer to Social Security.
Bush's privatization effort, far from "reforming" Social Security, would actually drain it of revenues, increase the national debt, and put at risk the savings of those individuals who opt for speculating in the stock market. Privatization would be especially onerous on women, the poor, and the disabled. But it would also imperil the promise of a secure retirement for people of every age group.
The first problem is the huge funding gap that even partial privatization would create all on its own. The way Social Security operates is that current workers pay into the system, and their contributions cover the benefits for those who are already retired and disabled. But if the current generation of workers is allowed to withdraw some of its Social Security contributions to invest in the market, then there will be less money available to cover people right now.
"Diverting just two percentage points of payroll taxes would create a gap of up to $2 trillion over the first ten years, according to various projections," The Wall Street Journal notes.
To finance that huge gap, Bush would have to choose either to raise taxes or to put the government further in debt. Since he's never met a debt he didn't like, that seems to be his preference this time around.
Personal investment accounts "could in the short run require additional borrowing to finance the transition," Joshua Bolten, the director of the Office of Management and Budget, told The New York Times.
The idea that Bush would add on to the federal deficit, which stands at more than $400 billion for 2005, is not going down well with some of his fellow Republicans.
"He's got a problem getting this through," Representative Tom Davis, Republican of Virginia, told The Wall Street Journal. "Floating a bond issue of a trillion dollars is not the message you want to send to the markets right now. Deficits are beginning to matter." Davis claims that about 10 percent of Republicans in the House oppose Bush's privatization scheme. If they hold their ground, it could be a dead letter.
That would be good news for all Americans except the CEOs of the investment firms.
President Bush appears to be basing his privatization idea on a proposal that would actually phase in cuts to Social Security beneficiaries over time.
N. Gregory Mankiw, Bush's chairman of the Council of Economic Advisers, is trying to get Americans used to the eventuality that their benefits will be cut. "Let me state clearly that there are no free lunches here," Mankiw said on December 2. "The benefits now scheduled for future generations under current law are not sustainable." He called them "empty promises."
The cuts could be deep.
"A worker who is forty-five today can expect to see a cut in guaranteed benefits of around 15 percent," Baker and Rosnick report. "A worker who is age thirty-five can expect to see a cut in the guaranteed benefit of approximately 25 percent. A fifteen-year-old who is just entering the work force can expect a benefit cut of close to 40 percent."
Baker and Rosnick predict that those who invest in the private market are unlikely to be able to recoup these losses. That fifteen-year-old, for example, "can expect to make back approximately $50,000 from the $160,000 cut with earnings on a private account," they write. "If this worker retires when the market is in a slump, then it could make their loss even bigger."
By taking benefits away, Bush would make the system less progressive. Currently, "Social Security benefits are highly progressive, so that low wage workers get a much higher share of their wages in benefits than do high wage workers," Baker and Rosnick note. "A worker who earned $10,000 a year during their working lifetime can expect to see a benefit that is equal to approximately 75 percent of their average wage. A worker who earned $33,000 a year will get a benefit that is equal to approximately 45 percent of their wage, while a worker who earned $50,000 on average will get a benefit that is equal to 39 percent of their wage."
But under Bush's plans, these guaranteed progressive benefits will drop. And if the worker makes a bad investment, they will drop even further.
If you are disabled, the problems only multiply. "Even under the best of circumstances, Social Security reform proposals would reduce benefits" for people with disabilities, according to a 2001 General Accounting Office study. It predicted that people with disabilities would see a loss in benefits between 4 percent and 18 percent.
"Social Security is not just about retirement," Senator Tom Harkin, Democrat of Iowa, has said. "It's also about protecting people who are wiped out by accident or illness that leaves them disabled. You can plan your retirement, but you can't plan for disability. It can happen to anyone at any time." Harkin pledges to protect the benefits of the disabled in the legislative battle ahead.
Women stand to lose, as well. "If Bush follows through with his plan to privatize Social Security, women will be more affected than men," Diana Zuckerman, president of the National Research Center for Women & Families, writes in a November 29 column in the Detroit Free Press. "Women depend more on Social Security than men do, because women are less likely to have their own private pensions when they retire. When women have private pensions, their pension checks are, on average, half as large as men's are."
Women also live longer, and if they are widows, they may depend on their deceased husbands' Social Security. If he squandered some of it in the market, she will suffer the consequences.
As the National Organization for Women has noted, "Advocates must keep asking the questions that will face many older women. What happens when your savings run out? What happens if your husband chooses not to share his personal savings account with you? What if inflation spirals out of control and much of the value of personal savings is eroded? What if your spouse was a foolish investor? What if the stock market crashes and loses value at about the time you want to retire?"
At bottom, the fight over Social Security is a fight over what kind of society we want to be. Are we a caring society, which ensures that the elderly, the disabled, and the widowed have a safe harbor? Or shall we revert to a society where the unpredictable winds of the market buffet our most vulnerable citizens this way and that?
Seventy years ago, when the flaws of capitalism were painfully glaring, we had a patrician President who, under tremendous social pressure, bent the iron laws of the free market and committed the government to something greater than refereeing disputes between property owners.
At present, when capitalism's cruel vicissitudes are beginning to slash deeply once more, we have a patrician President, freed from social pressure, who carries water for Wall Street and leaves the vulnerable to fend for themselves. We must put the pressure back on. The Campaign for America's Future, among other groups, is trying to stir the grassroots and organize a mighty citizens' movement to protect Social Security.
"The time is now," says Roger Hickey, co-director of the campaign, "for voters to tell our members of Congress, 'Don't you dare privatize Social Security.' Without a massive outpouring from Americans, there's a real danger that just enough Representatives in Washington--including some Democrats--will cave in early and vote with the special interests. . . . If you act now, you can stop the Bush plan."
The Bush effort to gut Social Security is the culmination of decades of Republican revanchism. We cannot let him--or this reactionary movement--succeed.