4-05-05, 8:44 am

From Labor Research Association

The Bush administration’s push to privatize Social Security is part of its broader agenda for an “ownership society,” outlined in Bush’s inaugural address as the cornerstone for domestic policy for his second term.

Bush’s ownership society hinges on the accumulation of wealth. Those who have amassed wealth and can afford to save for their retirement, health care and educational expenses will be rewarded with an array of tax credits and tax-favored investment options.

The vast majority of working Americans, however, will never reach sufficient income levels to participate in Bush’s “ownership society.” Before workers can begin to save at the levels that would allow them to join this world of wealth accumulation, they will have to increase their income and pay off their debt.

With consumer debt at record highs and real wages and income falling for most workers, the prospects for savings are grim. Over the past 12 months, average hourly earnings rose 2.2 percent, less than the 3.0 percent increase in the CPI.

Consumer debt now stands at $2.4 trillion, the highest level ever recorded. As interest rates continue to rise, the debt burden will consume ever-larger portions of workers’ incomes.

The national savings rate is 0.2 percent, the lowest level ever recorded. A rate this low indicates that most households are spending more than they earn. The current savings rate is well below the rates recorded all through the 2001 recession and far below the 3.5 percent to 4.5 percent rates reported through the late 1990s.

Bush’s tax credit for low-income families that purchase their own health insurance assumes that these families have enough income to buy insurance and then reimburses less than one-third of the average cost.

Also, Bush’s tax-favored treatment for high-deductible health insurance policies with health savings accounts ignores the fact that most workers cannot afford to set aside a substantial portion of their paycheck for health care and pay the large out-of-pocket costs required by the high deductible plans.

As more employers switch over to these high-deductible plans, many workers will be forced to decline coverage.

New tax incentives for retirement savings benefit only those with sufficient income to invest large amounts of money for their future. Bush’s proposals ignore two decades of experience with existing tax-favored 401(k) plans.

More than half of all workers are already eligible to participate in 401(k) accounts, but do not have enough disposable income to take full advantage of the tax incentives and employer contributions that 401(k) plans commonly carry.

Less than 6 percent of workers with 401(k) accounts contribute the full amount allowed by the Internal Revenue Service, according to a new study by the Employee Benefits Research Institute (EBRI).

EBRI also found that workers do not make substantial contributions to their 401(k)s until they reach a family income of $75,000 a year or more, almost double the $41,000 national median. Less than 20 percent of all workers eligible for 401(k)s have saved a sufficient amount to fund a number of years of retirement.

Bush’s “ownership society” also disenfranchises the growing number of new entrants and re-entrants in the labor force who are unable to secure a first job.

New entrants and re-entrants now account for 38 percent of the unemployed, up from 33 percent only a year ago. This means that an ever-larger group of young adults and others attempting to build a stable income cannot complete even the first step toward “ownership” status. Tax breaks and incentives mean nothing to workers with no taxable income.

The administration’s “ownership” approach to Social Security reform also ignores the inability of the elderly to risk any portion of their benefits or to live on reduced benefits.

Social Security accounts for 42 percent of the income of the elderly on average, but, for the lowest quintile, Social Security accounts for 91 percent of total income.

The original attempt to build an “ownership society” occurred after World War II when the government created the GI Bill and the FHA and VA home mortgage guarantee programs to promote home ownership. Strong economic growth and high levels of unionization in key industries allowed families to build economic security and win employer-sponsored retirement and health benefits.

Expanding the “ownership society” will take more pro-worker policies and more federal assistance to reach the working poor and minority families, not the tax incentives that Bush offers to those who can afford to save. The Bush plan abandons decades of federal programs designed to pool the risks that workers face and provide financial protection for all.

Under Bush, earnings for households with incomes above the median are growing twice as fast as earnings for households with incomes below the median. High-income households have also amassed greater wealth from Bush’s tax cuts. The “ownership society” simply rewards the wealthy with another round of tax breaks and opens the door to dismantling the social programs that aid working families.