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Bush's Plan to Privatize Social Security |
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Conservative Republicans never did want Social Security, and now think they can convert it to a giant 401(k) plan. (White House memo on Social Security privatization ) The current strategy was developed in 1982 primarily by the libertarian Cato Institute which opposes almost all government programs. Gingrich recently explained it as "shifting fundamentally all Social Security retirement benefits to the personal accounts over the long run." Bush has pushed this strategy forward with by hyping a non-existent crisis which Cato said would be needed to sell privatization, and through his 2001 privatisation commission.
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The 2001 President’s Commission on the Privatization of Social Security, produced three plans. Plan #2 is the one the privatizers are pushing for; the other two are window dressing. Plan #2 has two steps: (1) Set up "optional" private accounts, and (2) repair the damage. This graph shows some of the damage from the private accounts.
In Plan #2, private accounts take 1/3 of the Social Security revenues and put them in private accounts. This means Social Security, which is now mainly a pay-as-you-go, but with some left over for future pensions (saved in the Trust) can no longer pay for current benefits. Instead Social Security must begin using interest from the Trust immediately.
Taking interest from the Trust would otherwise have started in 2018. This what the privatizers says causes the Social Security “crisis.” That makes no sense, and even when they start taking interest immediately, there is no crisis, but it does slow the growth of the Trust. As time goes by Social Security runs less of a surplus as it is, and with private accounts it runs a bigger deficit every year. Principle from the Trust is soon needed and the Trust runs out in 2026 instead of 2042. That’s sixteen years early.
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The Purpose of Privatization. With some minor adjustments, we could make Social Security solvent for the next 75 years. But then the government would have to hand back the surplus. So why not "privatize" Social Security by transferring a small portion of each year's payroll tax into a personal savings account for each worker? Then, we could cut the benefits Social Security would have to pay and pray the market makes up the shortfall.
One Plan. Here's how the most popular of the Bush Commission's proposals (pdf) would work.
First, reduce benefits for everyone under 55 today by changing the way in which they are adjusted for inflation - from wage indexing to price indexing. Commission members admit THIS CHANGE ALONE WOULD SOLVE SOCIAL SECURITY'S LONG-RUN FINANCING PROBLEM AND EVEN PRODUCE A SURPLUS.
Next, add "voluntary" personal accounts financed by up to 4% of payroll taxes paid for each worker (up to $1,000).
Then, for those who opt in, reduce their Social Security benefits again - charge them for how much their account contributions "cost" the Social Security trust.
Finally, to pay for setting up the personal account system, ADD GENERAL REVENUES TO SOCIAL SECURITY FOR THE FIRST TIME - estimated at $4 billion in 2010, up to $73 billion in 2016 and who knows how much into the future.
What's the Point? It's not to "strengthen" Social Security, obviously. It's ideology. First, it's about the size of government. Adding personal accounts would reduce the amount the government would have to pay back into the trust by cutting benefits and reduce the amount Congress could spend in the future by putting contributions into individual accounts rather than the trust. Second, it's about the role of government. Adding personal accounts shifts more of the responsibility for retirement income as well as its risks from a guaranteed government program to workers.
Could it Work? It might but it's risky. Social Security provides critical retirement income that keeps millions of Americans out of poverty in old age. Privatizing Social Security means these workers, largely low-income, must play the stock market - and win - to duplicate the income they receive today. And many of these workers will little or no retirement income from the private pension system to make up any shortfall.
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http://zfacts.com/p/488.html | 01/18/12 07:17 GMT
Modified: Mon, 01 May 2006 23:36:43 GMT
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