Social Security isn’t broken, but Washington is full of reformers looking to fix it. Many, especially those who favor privatization, claim that the retirement of baby boomers and budget problems will cause the Social Security Trust Fund to run out of money within anywhere from the next decade to the next 40 years. Ideologically driven claims rather than facts, however, lie at the heart of the pro-privatization arguments.

In 2001, Bush appointed a commission whose sole purpose, despite claims to the contrary, was to devise the best Social Security privatization methods available. This commission was composed entirely of investment-oriented technocrats and pro-privatization ideologues. For two decades, the right has worked on generating the political momentum to dismantle Social Security. Their goal is ideologically motivated rather than based in any factual claims about Social Security’s viability.

Despite large annual surpluses ($138 billion in 2003 despite a weak recovery), privatizers insist that the system has about 14 years before it collapses (2018). They set 2018 as the date because the sell date of many US bonds purchased by the Social Security Administration is that year. This is the year that SSA’s income from payroll taxes is expected to be smaller than what it has to pay in benefits. They forget to remind us that like any other public debt Social Security bonds will be rolled over into another cycle. They also neglect to state the simple fact that the assets owned by the SSA are adequate enough to cover the difference between its income through the payroll tax and what it has to pay in benefits. According to both the Social Security Trustees and the Congressional Budget office, this balance is safe decades into the future.

If we follow the privatizer’s debt crisis logic, however, we might conclude that foreign investors who hold trillions in US bonds could bankrupt the US government at any time by demanding payment. But privatizers don’t seem overly worried about that. They know that people who buy US bonds have more to gain by holding on to them.

Privatizers also claim that the growing and aging workforce will put greater pressure on the system once those workers retire over the next decade. Surpluses will disappear. But this assumption hinges on slower than normal economic growth. Since the Social Security depends on current workers paying in through a small payroll tax, its financial future depends on how well the economy creates jobs and how well those jobs pay. Job creation is related to how well the GDP grows.

Since the Reagan era, the Social Security Trustees have predicted a dire economic picture with slower than average rates of GDP growth in their estimation of the financial future of Social Security. Even with pessimistic predictions – they paint an economic picture worse than the Great Depression – the Trustees conclude the system without any changes will remain financially sound until 2045 when some benefits would have to be cut. If Bush used the same numbers to forecast the growth of the federal debt, he’d never pass a single tax cut plan.

A Congressional Budget Office report released last June, using more realistic predictions, said that surpluses would persist until 2052, and in 75 years the financial trouble it would incur would be about half of what the Trustees predict. When compared with the current federal debt (4 percent of GDP) or the current foreign debt (5 percent of GDP), the Social Security’s financial shortfall – 75 years from now – would account for an easily manageable 0.4 percent of the entire economy. The cost of Bush’s tax cuts alone over the same period of time, according to the Center for Economic and Policy Research, will be about three times that amount.

To avoid collapse, privatizers claim that benefits will have to be cut or payroll taxes raised. Another option in their view is to allow current workers to opt out. Instead of paying a tax, the government would withhold part of their earnings and put them in private accounts managed by large investment firms. Investment bankers would put the money in the stock market or whatever speculative schemes they have cooked up at the moment: corporate debt, Enron-type deals, housing bubbles, price or currency derivatives and so on.

Individuals wouldn’t control these accounts; corporate financial bureaucrats would. They aren’t guaranteed to give workers any return in the future, but you better believe that brokers fees and commissions will fatten the bottom line of some investment companies. According to Barbara B. Kennelly, of the National Committee to Preserve Social Security and Medicare, it would cost $940 billion to move from the current system to private accounts alone.

Private accounts will also speed up Social Security’s financial problems by removing trillions of dollars from the system in just a few short years. Current retirees and disabled workers could expect severe cuts in their benefits almost immediately despite the claims of the privatizers.

Because hundreds of billions of Social Security surplus dollars are used to cover part of the US government’s spending needs, the withdrawal of the money would have a negative impact on the government’s ability to finance its operations and pay its debts.

The rapid loss of so much money would still require cuts – between $300 and $500 monthly – in benefits, according to the Center on Budget and Policy Priorities.

Without any changes, cuts in benefits, increased taxes, or privatization, however, Social Security over the next 75 years would continue to pay the same benefits for without any financial problems. A lot could happen in those 75 years to improve such a bleak future predicted by the privatizers. Spending priorities could shift from bloated military budgets, rich tax cuts, and corporate giveaways to investment in job creation, training, education, and trade policies that keep jobs here.

Privatization schemes, however, will rob our parents, us, and our children of the promise of financial security after a life devoted to work. Let’s not allow the fruits of our labor to line the pockets of the filthy rich.



--Joel Wendland is managing editor of Political Affairs magazine and can be reached at jwendland@politicalaffairs.net.



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