For decades, Wall Street and right-wing politicians have maintained a drumbeat of gloom and doom about the future of social security. In response, on May 2, President Bush established a bipartisian commission to "study and report... specifric reccomendations to preserve Social Security for seniors while building wealth for younger Americans." Yet, there is little reason to "modernize" the most efficient insurance system in the nation. Rather than endanger the social security trust fund by expanding voluntary individual accounts, we could close the 1.86% revenue shortfall predicted over the next 75 years by simple measures such as using part of the US budget surplus or eliminating the salary cap for Social Security tax.
On May 2, President Bush announced establishment of a bipartisan, 16-member Commission "to study and report . specific recommendations to preserve Social Security for seniors while building wealth for younger Americans."
From the Social Security Website:
"Guiding Principles
The Commission has been asked to make recommendations to modernize and restore fiscal soundness to Social Security, using six guiding principles:
Modernization must not change Social Security benefits for retirees or near- retirees.
The entire Social Security surplus must be dedicated only to Social Security.
Social Security payroll taxes must not be increased.
The government must not invest Social Security funds in the stock market.
Modernization must preserve Social Security's disability and survivors insurance programs.
Modernization must include individually controlled, voluntary personal retirement accounts, which will augment Social Security. "
What this really means
First of all, the use of the term "modernize" implies that Social Security is somehow antiquated and not in step with the times. This could not be further from the truth. Social Security is in fact the most efficient insurance system in the nation. SS provides over $12 trillion in life insurance protection, far exceeding the combined value of all private life insurance policies in force in the United States. The administrative costs of Social Security are 1% of payout compared to 12-14% for private insurance. Who needs to modernize?
The Commission is asked to make recommendations to ".restore fiscal soundness to Social Security." which implies that it is fiscally unsound now. Again, this is a lie. The SS Trustee's 2001 report project that the system will be able to pay all benefits at the current levels through 2038. This projection is based on conservative assumptions about US economic growth that are significantly below historic performance of the economy. The Trustees project 1.7% average productivity growth over the next 10 years. The Congressional Budget Office assumes 2.4% for the same period. Either there is no surplus for the Bush tax cut or Social Security is not in trouble - which is it Dubya?
By taking increases in payroll taxes off the table, Mr. Bush has removed the only safe and viable methodology for improving the fiscal position of Social Security. His insistence on a huge tax cut, with the blessing of congressional Democrats, insures that no excess revenue will go toward strengthening the Social Security trust fund.
The only method open to the Commission is ".individually controlled, voluntary personal retirement accounts, which will augment Social Security." This is something many Americans already have in the form of 401K, 403B and IRA accounts. What the Commission is likely to propose is allowing workers to take a portion of the SS tax and invest it in an "individually controlled" manner.
Voluntary Individual Accounts - A Wolf in Sheep's Clothing
To understand the impact of this, suppose you are CEO of a major insurance company whose primary product is an annuity program that guarantees customers a minimum income from retirement to their death. Your actuaries inform you that this program is fiscally sound for the next 37 years. Then your CFO comes in with a great plan - let's let our customers take part of their premium payment and invest it with a competitor instead of giving it to us! Good idea? Of course not! This would hasten the bankruptcy of the plan and force a cut in benefits in the very near future. That is the goal of the Bush Social Insecurity Commission.
Voluntary Individual Accounts weaken Social Security by diverting revenue from the Trust Fund that is needed to support future retirees. This will destroy the fiscal stability of the Social Security system and threaten the benefits of retirees in the very near future.
Voluntary Individual Accounts will create incentives for high-income and younger workers to opt out of the system, leaving behind more vulnerable segments of the population. Social Security will become a "poverty" program instead of a insurance program for all Americans.
Voluntary Individual Accounts expose taxpayers to unacceptable levels of risk. What "investments" will be permitted? What "financial professionals" will offer advice? What controls would there be on administrative costs of these other investments? Will future generations watch their parents starve?
Voluntary Individual Accounts will destroy the equity and fairness of the Social Security system. Those who make wise or lucky investments will receive higher retirement benefits; those who make unwise or unlucky investments will live in poverty through their golden years.
The Real Way to Strengthen Social Security
Social Security does not need radical change, only incremental change - a conservative approach. The trustees project only a 1.86% shortfall in revenue over a 75-year period. This could be accomplished with 2 simple steps that would have no effect on the vast majority of Americans:
Use some of the projected budget surplus to increase the rate of return on the Treasury bonds in which Social Security's assets are invested.
Eliminate the salary cap for Social Security tax, currently at $80,400. This would only affect the top 10% of taxpayers, insuring that they pay the same rate of tax as the rest of us since they receive the same benefits as the rest of us.
