Archive » August 31, 2007
POLITICAL OPINIONS FROM THE LEFT
By David Phillips, Journal Contributor
The Privatization of Social Security
The Social Security Act was signed into law in 1935 by Franklin D. Roosevelt. In 2005 President George W. Bush went on a cross country campaign to promote his ill conceived plan about ending the program and setting up private accounts.
The privatization plan, headed by Karl Rove, would be a windfall for banks. In fact, banks would make billions on the plan that would set up private accounts with the money invested in various stocks and funds. And if the stock market took a dump, so would people’s retirement accounts.
Almost Every President since FDR, have raided some of the surplus money in Social Security to pay for other programs. In Bush’s case, he has taken every dollar of surplus and used it to pay for his tax cuts for the rich. Every year Social Security has had a surplus (money left over after payouts), and in 2003, Social Security had a surplus of $139 billion, which Bush redirected to help pay for his tax cuts. Bush has redirected the surplus every year since.
In 2000, Al Gore, while running for president said if he were elected, the money collected for Social Security would be placed in a “Lock Box,” meaning that the Social Security money could only be used for Social Security programs, which would insure its solvency, but Republicans and right-wing talking heads made jokes about his use of the words, “Lock Box.”
Currently, people are allowed to have Individual Retirement Accounts (IRA’s). People are also allowed to contribute to what are called 401k retirement accounts. So what is it with Bush’s push to privatize Social Security under the guise of private accounts?
Maybe it is because he wants to end the program and use the money for his ill conceived wars, while at the same time, making billions for his corporate bank buddies.
During Bush’s nationwide stump to promote his plan, he said that those who are 50- years-old or older don’t have to worry; they would still receive their Social Security benefits. But everyone under 50 could opt out and start a private account with any of the pre-arranged banks that they would set up.
The banks wrote the legislation that would be submitted if the privatization idea ever moved forward. If you recall, it was the pharmaceutical companies that wrote the Medicare Plan D (drug program), which does not allow the federal government to negotiate drug prices, and allows the drug companies to raise the cost of drugs every year.
The Bush administration says that there is a crisis in the Social Security system and that it will be bankrupt by 2042. The Democrats say Social Security can be fixed without introducing the risks and costs of private accounts. They prefer a mix of raising the payroll tax rate, increasing the cap on the payroll tax above $90,000, and boosting the retirement age.
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately earn benefits more than those under the traditional system only if the return on their investments exceeds the amount their money would have accrued under the traditional system.
"You'll be able to pass along the money that accumulates in your personal account, if you wish, to your children . . . or grandchildren," Bush said in his State of the Union address. "And best of all, the money in the account is yours, and the government can never take it away."
What Bush did not detail is how contributions in the account would reduce workers' monthly Social Security checks. Under the system, described by an administration official, every dollar contributed to an account would be taken from the guaranteed Social Security benefit, with interest.
If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker’s upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 — the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system.
Under the system, total benefit gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return over inflation. Thus gains in an account would be offset by a reduction in guaranteed benefits equal to 70 percent of the account's balance.
President Bush's Social Security Commission has provided three options for reforming the system. All include private accounts. Two of them also include some cuts in benefits to move the program toward solvency.
There are a number of proposals from a variety of experts that make Social Security solvent over the next 75 years, but do not include private accounts. Here are some highlights from a proposal by economists Peter Orszag of the Brookings Institution and Peter Diamond of the Massachusetts Institute of Technology.
· Gradually raise the payroll tax by just under 1 percentage point for both workers and their employers.
· Add a 3 percent to 3.5 percent tax on high-wage workers. The tax would be levied on salary amounts above the maximum taxable level, currently $87,900.
· Make some cuts in benefits for workers currently less than 55-years-old. For instance, a worker currently 35-years-old would have the benefits promised under current law reduced by 4.5 percent. But they would still be higher, in real terms, than benefits for current retirees.
stand at the moment, President Bush has no chance of pushing his Social
Security plan through. Bush has said on a few occasions that the removal of
It seems to me that the Democrats have the most logical plan to solve Social Security’s woes.
David Phillips is a Vietnam Era Veteran, a Democratic Party Activist, and David is also the Publisher and Editor of the online political magazine YodasWorld.org
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