FUMBLING OVER SOCIAL SECURITY
BY JULIANNE MALVEAUX
Financial planners and pension fund investors have always told their clients
that retirement income is a “three-legged stool” composed of Social Security
income, private income from savings and investment, and pension income. They
might have been interested that the President’s Commission to Strengthen
Social Security has all but recommended sawing off one of the legs of the
stool so that people might be incented to work harder on developing another.
Few disagree with the President’s 15-member commission (one seat is
vacant) that Americans need to save and invest more. But from the draft
report presented at the Commission’s second public meeting, observers had to
wonder whether the mission of the President’s commission was to strengthen or
to weaken the retirement security system that has been with us for more than
65 years. The Commission’s interim report is an alarmist and inaccurate
screed that alleges that the system will start to flounder as early as 2016,
when Social Security payments will exceed payroll tax receipts. Actually,
the Social Security system holds enough government securities to pay full
benefits until 2038, a fact that is mentioned, then dismissed, by the
Commission’s report.
No wonder there were protests outside the Washington hotel where the
Commission met. Those who look askance at the commission’s work feel this
group, wholly selected by President Bush, was handpicked because they concur
with President Bush about issues of privatization. The interim report is
sprinkled with references to a revised Social Security as a potential
wealth-building device, but proposals to take a retirement security plan and
shift it to a wealth-building plan removes key redistributive aspects from
the Social Security system. That’s no surprise – the Bush Administration
seems to frown on economic redistribution, speaking instead of “empowerment”.
But while there is nothing wrong with providing incentives for people to
save (like expanded Individual Retirement Accounts), those incentives should
be separate and distinct from Social Security.
In order for Social Security to survive, the Commission’s interim report
says, we have to raise taxes, cut benefits, or both. A modest tax increase,
say a quarter of a percentage point on the payroll tax, may not be a bad idea
if it is imposed in 2016 when receipts begin to lag. If earners paid Social
Security tax on their entire earnings, not just the first $75,000 or so,
that, too, would increase Social Security revenues. These modest
suggestions might well be debated as the commission moves toward its final
report. But the commission may well have tarnished itself in the public’s
eyes with a set of faulty assertions that would not be acceptable in any
corporate context.
Social Security receipts will exceed disbursements through 2016, at which
time the Social Security systems shows a surplus that is secured by
government bonds. The commission all but asserts that those bonds are
worthless, but if this is true, then why do investors from all over the world
buy US government bonds. We have a record of paying our bills, and I assume
that if we do so for foreign investors, we’ll also do so for our nation’s
elderly!
Bonds, after all, are promises to pay a return in the future in exchange
for some investment now. The Social Security system has built up surpluses
because payroll taxes have exceeded disbursements for the past decade or so,
and will continue to do so until 2016. Those surpluses go into the US
treasury to pay down debt and provide us with more favorable financial
conditions (such as lower interest rates) than we would experience otherwise.
Our monies have provided a positive economic climate today, and they should
be repaid in the future.
Does Richard Parsons, the Chairman of AOL Time Warner, mean to imply
that when people buy bonds in his companies, they are gambling? Does the
Vice-Chair of Fidelity Securities expect his company’s investors to view
their funds as less than secure? How can the financial whizzes on this
Commission ignore the surpluses that have been built up over the years?
Would they do the same if their own corporate revenues were involved?
Perhaps that’s the catch. Who benefits from Social Security
privatization? As always, in politics, it pays attention to “follow the
money”. If you follow the money on the Social Security commission, you’ll
notice heavy corporate representation, especially from the financial services
industry. Former politicians are also represented. Representatives of the
African American and Hispanic communities are also present. But there is no
one from organized labor, no one from a consumer group, no one to point out
that a portfolio is no substitute for Social Security. Was this Commission
put together this way by design, with the bias toward throwing money at Wall
Street, which profits with administrative and handling fees, instead of
strengthening the system that we have? The interim report breaks no new
ground, but it raises questions about the many ways financial whizzes can
fumble numbers to get the results they want.