The President’s budget for 2008 would permit diverting four percent, more than half, of each worker’s FICA contributions from the Social Security system to private investment accounts (PIAs). This is no small matter. The President’s budget proposal estimates that his plan for PIAs, which would go into effect in 2012 (conveniently, after President Bush’s tenure ends), would cost $29.3 billion in FY 2012 and $637.4 billion during the period from FY 2012 to 2017.
Although in 2004 and 2005, Americans resoundingly rejected using Social Security funds for individual PIAs, this administration remains determined to alter the very nature of the system. We had better pay attention to what is being said and done.
So let us review. During the previous push, President Bush insisted that “Social Security is in trouble.” He offered PIAs as the solution. In supporting change, he alleged that shortcomings and injustices are inherent within the current system. In particular, the President: (1) asserted that allocation of funds to Social Security is wastefully unproductive of investment return; (2) labeled the system’s promise of future benefits as untrustworthy; and (3) maintained that the existing system is unfair to African Americans.
Is Social Security in trouble?
Currently, Social Security is in excellent financial shape. According to the Trustees of the Social Security trust funds, the Social Security system in its present form will be running surpluses over the next decade, until 2017, and will be able to pay all promised benefits as they come due over at least the next 33 years.
For the long run, though, there is a need to make some adjustments. The legitimate concerns relate to costs and benefits for 2040 and thereafter. The trustees project that, unless we make changes in taxes or benefits, the trust would no longer have funds to pay more than about 75 percent of the scheduled benefits and costs. By 2080, still assuming no change in the current schedule of taxes and benefits, the system would cover about 70 percent of all benefits. With modest, responsible adjustments, the system’s long-range shortfall will be corrected allowing Social Security to provide our children and grandchildren with the same secure inflation-protected foundation of retirement income that it provides to current beneficiaries.
Would private investment accounts provide a solution?
Using funds currently earmarked for social security to establish PIAs would do nothing to alleviate shortfall in Social Security. To the contrary, diverting funds would exacerbate existing shortfall and threaten the end of Social Security as we have known it.
Are payments to Social Security reasonable investments?
The President, wealthy from the moment of his birth, has not had to face the possibility that he might at some point be without resources to pay for food, shelter or health care. But most Americans do not live in the style in which the President does. Social Security is the basic and primary source of income for many, accounting for half or more of total income for two out of three recipients 65 years or older. For 25 percent of Social Security beneficiaries, it is the only income. These people are in no position to ride with the ups and downs of the stock market. Any investment advisor would advise these people that their investment program should include a conservative investment to assure that basic needs are covered. Social Security is that solid, conservative investment.
The Social Security package includes the following benefits, all integral to financial security:
● Survivor and disability benefits - full benefits if a worker should die or become disabled, assuring continuing income flow to the family.
● Progressivity - retirement benefits for lower income workers will replace a higher proportion of their earned income than are replaced for higher income workers.
● Inflation-protected lifetime annuities - Retired beneficiaries get lifetime annuities, protected against the impact of inflation, a form of annuity not available on the market.
None of these vital benefits--fundamental to financial security--would be available through PIAs!
Is the Social Security promise of future benefits untrustworthy?
Many remember the President’s visit to a federal office in West Virginia in 2004 for a media event, in which he reached into a filing cabinet and held up papers, telling television audiences that these “pieces of paper” were all that stood behind the promise that they would one day receive benefits through Social Security. The heavy implication was that there really is almost nothing behind those promises and that surely we would all be better served by some other kinds of paper, perhaps stock certificates.
Of course, practically all investments, even money itself, are represented by “pieces of paper.” And the papers backing the promises of Social Security are largely U.S. Treasury bonds, backed by the full faith and credit of the United States government. Beyond that, the promises are backed by statutes enacted by the U.S. Congress, an established 75-year history of fulfillment of promises, and the clear wish of the American people to maintain and support the Social Security system.
In short, the promise of Social Security is a trustworthy and sacred one. Franklin Delano Roosevelt once told us, “The only thing we have to fear is fear itself.“ It is also true that the only way to undermine the promise of Social Security is to erode confidence in the integrity of the system.
Is the Social Security system unfair to African Americans?
The claim that African Americans are being treated unfairly would be a potent argument against the current Social Security system if it were true.
But the argument, based on the lower life expectancy of African Americans, is distorted and its conclusion is false because it considers only retirement benefits. The argument ignores the array of benefits that make Social Security so valuable to low-income people. The United States Government Accountability Office in 2003--during the President’s own watch--studied this specific issue and found that, because of the progressivity built into the Social Security system and because of their heavier use of the program’s disability and survivor benefits, African Americans and Hispanics actually receive a greater return on their Social Security taxes than do whites.