As a baby boomer, I’ve feared for years that in my old age I will be eating cat food to survive. But if I’m worried, people younger than I must be in despair. Three quarters of them are convinced Social Security will implode before they ever see a dime (Newsweek, Princeton Research, February 13, 2005). And any talk about changing Social Security is scary for seniors because, for a third of them, it is 90 percent of their income.
After his reelection, President George W. Bush got a report evaluating Social Security’s health for the next 75 years. Payroll taxes at the current rate will completely cover benefits until 2018. After that, the current surpluses and their accumulated interest can keep the system afloat only until 2042. From that point on, the reserves will be exhausted and payroll taxes will cover only 73 percent of promised benefits.
Most Successful of New Deal Programs
Social Security is an insurance plan for everyone. Besides providing for the elderly and their spouses, it also supports widows, orphaned children and disabled people.
Social Security is paid for by payroll and self-employment taxes. For Old Age, Survivors and Disability Insurance (OASDI), company workers pay 6.2 percent on the first $90,000 (in 2005) of their annual earnings, and employers match that contribution. An additional 1.45 percent of all income (no cap) from both employees and employers covers Medicare. Self-employed people pay 15.3 percent for OASDI and Medicare.
Before 1935, some people provided for their old age by having many children to support them later. (This is still true in developing countries.)
Franklin Delano Roosevelt thought of Social Security as the linchpin of his New Deal. He saw the elderly supported as if on a three-legged stool, with Social Security as one leg, pensions and personal savings as the others.
Something dramatic has happened to those other legs. Since 1985, about 80,000 of the 112,000 corporate pension plans have been canceled, according to U.S. News and World Report (January 24, 2005). Workers have started their own 401(k) accounts to take up the slack. Unions and companies have manipulated pension funds. Personal savings accounts now earn little. The stock market has yet to return to pre-2001 levels.
This means the other two legs of this stool are wobbly. Social Security is intended to be stable, guaranteed, fail-safe.
In fact, for a fifth of the elderly, Social Security is their only income. Even critics of Social Security agree that the program is a model of efficiency, with far lower costs than private pension plans.
In his February 3 State of the Union address, President Bush described it as “a great moral success of the 20th century.” His desire to make Social Security sounder is noble. His plan to allow young workers to take their money out of the system, however, would destroy it.
Privatization Not in Public's Interest
Why does St. Anthony Messenger care about such a political hot potato? Because it involves justice. Because Social Security supports the “widows and orphans,” the anawim of the Bible. Because it involves the common good, which 100 years of Catholic social teaching have tried to promote with faith-informed values.
Privatization will take out of the system the new money paid by younger persons. In the early days of Social Security, 42 workers supported every retiree. Now, there are 3.3 workers per retiree. Privatization will accelerate that imbalance.
Great Britain introduced privatized retirement accounts under the Thatcher government in the 1980s. Their performance has been mixed, and marked by scandals over excessive fees and inappropriate management.
According to National Public Radio (February 10, 2005, Morning Edition), three counties around Galveston, Texas, opted 24 years ago for a private retirement system. Now many of these retirees are receiving $500 a month less than if they had stayed in Social Security.
According to the Newsweek poll, 73 percent of young voters say the government should protect them if their private accounts go bust. That’s wanting to have your cake and eat it, too.
The only folks guaranteed a windfall with private retirement accounts are fund managers and financial planners.
Yes, the stock market outperforms U.S. Treasury bonds, but it is highly risky. Studies show that many individuals investing in stocks do worse than the market average.
AARP, the country’s strongest voice for older Americans, totally opposes Bush’s plan.
Solutions That Hold More Promise
Five modest adjustments in benefits or payroll taxes could keep Social Security solvent for coming generations:
• Establish a later age for retirement than 65, an option already being phased in.
• Restudy benefits for current retirees, particularly for the wealthy, or the formula for cost-of-living increases.
• Increase the payroll tax ceiling to $120,000, rather than the current $90,000. Otherwise, the maid is subsidizing the boss’s retirement.
• Get federal employees, including members of Congress, into the Social Security system, as well as employees of state and local governments.
• Increase the payroll tax by just 1.89 percent (split between employer and employee). According to Charles R. Morris (Commonweal, February 11, 2005), that alone could carry Social Security through the next 75 years.
To do nothing about Social Security now would be foolhardy. But to rush into dismantling the system by allowing private accounts would be disastrous—and just plain wrong.B.B.