Bush’s Social Security plan doesn’t fix anything
When President Bush spoke to the nation in his State of the Union address, he outlined many priorities that will drive his second-term agenda. While I happened to agree with some of his key issues, I was concerned about his goal of privatizing Social Security.
Social Security has worked, as envisioned by President Roosevelt, for the last 70 years. Arguably the single most successful government program, Social Security has paid out its guaranteed benefits on time as a supplemental retirement income for our seniors and kept our grandparents from falling into poverty. Additionally, the system has provided an added financial benefit to widows, children who lose a parent, and disabled workers.
So why is there now, suddenly, a need to privatize Social Security, especially when doing so would be incredibly costly and take much-needed funds from other areas of importance? The administration argues the system is in a financial crisis. Well, I’ve been a small businessman, and if I knew my business was going to be solvent for 36 to 47 years, (Social Security Trustees number versus Congressional Budget Office number) I would probably be more fiscally conservative than the administration, and not make any radical changes that contain gigantic up-front deficits and bring high financial risks.
Essentially, the challenge with our Social Security system is that in 2041 or 2052 there will not be enough people contributing payroll taxes to cover benefits. However, there would still be enough funds to pay 73-80 percent of benefits.
Social Security actuaries make three types of projections — optimistic, pessimistic, and intermediate. Under the optimistic projection, Social Security can pay 100 percent of promised benefits for the next 75 years and beyond. Under the intermediate scenario, the system will pay 100 percent of promised benefits through 2042.
David Langer, an independent actuary who has studied the track record of these projections, found that the optimistic projection has consistently been the most accurate estimate.
Now, while the administration has not yet introduced or endorsed a privatization plan, they have made it clear what they want to see happen and right now I don’t think it makes much sense. The major goal is to take Social Security, an insurance program, and carve it up into a private investment plan.
This will add trillions of dollars to our enormous debt (even Vice President Cheney admits this) and does nothing to solve Social Security’s future funding problem — it actually speeds up the time the system goes insolvent.
Not only would private accounts contain additional risk that is not part of the Social Security insurance we all have, but it also contains a privatization tax. Basically, under the administration’s ideal plan, any money you take out of Social Security, plus the interest the Social Security Trust fund would have earned on that money (up to 3 percent), would be taken away by the government in the form of cuts to the worker’s guaranteed benefit. If a worker earns the average rate of return assumed by the president (4.6 percent above inflation on a mixed stock-bond portfolio), the privatization tax would consume 70 percent of the account. For future retirees, this comes on top of the 40 percent cut the Bush preferred plan would impose on everyone, even those who don’t want a private account.
I don’t see how this plan is good for the blue-collar employee and other working-class Americans. I am not against people having private investments. I’m actually for this, but they need to be in addition to Social Security, and not created by gutting the system.
Instead, we should provide businesses with incentives and tax credits to encourage them to offer their employees private investment accounts. We should work to strengthen 401(k)s. We should also make the little adjustments necessary to shore up Social Security. But we should not destroy a government success story by creating a radical plan that is fiscally and morally unsound.
U.S. Rep. Lincoln Davis represents the Fourth Congressional District in the U.S. House of Representatives.