Social Security: Fix Or Scam?

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President Bush has been pushing to overhaul Social Security by allowing Americans to create private accounts. In a recent column I wrote about why this is a dangerous step for Black Americans. Private accounts actually don’t make sense for many Americans of any color.

Social Security, one of the greatest protections our country offers, has always been meant to be a social insurance policy that guarantees enough—not an investment that offers a chance for more at the risk of too little. That’s why many experts believe changing this stable and secure public compact might be very dangerous for many workers—and a move that’s far more drastic than the current manufactured Social Security “crisis� actually calls for. The so-called “crisis� does not exist.

The Center for Budget and Policy Priorities, on whose board I sit, points out that private accounts by themselves won’t reduce the Social Security shortfall and would actually make Social Security’s finances worse because they would take some payroll tax revenues away from the program. The President’s proposal would also harm the federal budget because it would require trillions of dollars in new borrowing, which will primarily benefit people on Wall Street. And private accounts won’t be a guaranteed windfall for individual workers either. The Center reminds us that “under the President’s plan, workers who open a private account would receive a significant cut in Social Security benefits that in many cases would offset the entire value of their private account.� This is a dangerous risk many workers can’t afford to take.

Who might benefit under the President’s plan? A report by the Social Security Network argues “a shift toward individual accounts offers the best prospects to high-income individuals, with minimal family obligations, who work for 40 years or more without disease or disability and retire in a financial bull market. Groups that are likely to suffer are low-wage workers (notably women and African Americans); people whose working years are interrupted by family obligations (women again) or disability (African Americans again); dependents of workers, and anyone who retires after financial markets have experienced a crash.� So the President’s proposal is definitely not a one-size-fits-all—or even one-size-fits-most—solution. People of color should be especially wary. And there’s one more piece to the puzzle of the President’s plan to worry about: the President has still not released his proposed cuts to the existing Social Security plan for younger workers, but every summary shows that he plans to “cut� younger workers’ benefits by at least as much as he “fears� they might suffer if the system isn’t changed. If he gets his way, they will indeed lose everything he is predicting they will lose, and they will be left holding a lottery ticket in exchange.

Are there other ways of fixing Social Security? Of course. As usual, the choices come down to priorities. The Center for Budget and Policy Priorities also points out that if the President really simply wants to fix Social Security, over "the next 75 years, the combined cost of the 2001 and 2003 tax cuts (if made permanent) and the Medicare drug legislation will be at least five times as big as the Social Security shortfall.� But just as important as understanding the possible drawbacks of private accounts as a solution to the shortfall is understanding that this shortfall itself may not actually count as a “crisis.�

Social Security does face a long-term funding shortfall, but it is far from being on the verge of bankruptcy. When the President talks about the system facing “bankruptcy� in a few decades, he is talking about the time, if it ever comes, when the Social Security trust fund is exhausted. All the checks would go out on schedule, but the amounts would be reduced to the total provided by the then current workers paying into the insurance fund. But experts argue this would be a mighty nice sort of “bankruptcy�—because in order to exhaust the trust fund, the rate of real (after inflation) economic growth will have to be so high that the earnings of people working and retiring then will also be much higher than the earnings of workers today.

In fact, their earnings will be so high that even after the reduction in benefits, those benefits will be higher than benefits paid today¬—and paying them will be a smaller burden on those more prosperous workers than is insurance withholding today. In other words, if we do absolutely nothing—if we never change a single word of the existing Social Security Act—the youngest workers today, and even the babies born in the next decade and after, will receive a Social Security check on the day that they retire that is larger in inflation-adjusted value than the check received today (or at any time in the past) by workers retiring with a comparable earnings history. Our children will be better off when they retire—all of them, including those with the least lifetime earnings—than we will be or than our parents have been.
So why propose a drastic overhaul of the system now? Many people are asking the same question, just as they’ve asked it about some of this President’s other choices. As one Washington scholar puts it, “Social Security is like a car with a flat tire. We should fix the tire --not borrow the money to buy a [new] car.� And that flashy new car looks like it could take millions of American workers, especially Black and Brown workers, for a very dangerous ride.

Wright Edelman is President and Founder of the Children's Defense Fund and its Action Council whose mission is to Leave No Child Behind. For more articles and reports please click on "subscribe" on the homepage for for the newsstand edition of The Black Star News. Advertisers can also reach us by calling (212) 481-7745.

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