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Social Security: Let's Keep It Secure!

'Voucherizing' Social Security could rip the system apart.

When author and investment firm executive William G. Shipman discussed the Social Security system last year with a group of Florida investors, he warned of a long-term funding shortfall. His solution, the Naples Daily News dutifully reported, was to give "individuals the freedom to invest all or part of their payroll taxes into individually owned, privately invested accounts. Otherwise the system as it exists today will go broke."

During this year's Presidential campaign, you'll hear more about this solution for a "failing" Social Security system. But before you invest in this idea, ask detailed questions about the real state of Social Security, who would benefit from handing the system, or part of it, to the financial industry, and who's pushing hardest to make that happen.

Who beside your banker or broker, that is.

"Lobbyists for Wall Street are trying to stay behind the scenes as they argue for Social Security privatization," the Washington Post has noted, "because they and their firms stand to profit by the changes they are promoting."

But you can expect to hear lots from folks like Shipman, co-chair of the Cato Project on Social Security Privatization, part of a network of ultraconservative think tanks busy promoting everything from social service privatization to school vouchers.

Yes, vouchers.

"Simply put, American schools are failing because they are organized according to a bureaucratic, monopolist model," declares Cato Briefing Paper #25. "The simplest way to create a system of educational choice is a voucher plan or a tax credit system."

The Cato Institute is now working "choice" into the Social Security "reform" debate.

The Cato credo: Individual accounts funded by the Social Security payroll tax will "give workers ownership and control over their retirement funds, allowing them to accumulate wealth...and pass that wealth on to heirs."

Presidential candidate George W. Bush has adopted Cato's model as his own.

"One of the things I'm proposing," Bush told Fox News in May, "is to allow younger workers to invest a percentage of their payroll tax in private-sector investment vehicles, whether it be equities or bonds or T-bills, so that they own their own assets, an asset that they can pass from one generation to the next."

When you hear George Bush-or any candidate-advocate this approach to "saving" Social Security, ask these five probing questions:

1) Is the Social Security system really near collapse? Using federal projections of a future funding shortfall, Governor Bush has warned that if "we don't think differently" about Social Security, "by the year 2037 the system is going to be broke."

But Bush overlooks the fact that official projections are "based on extremely pessimistic economic assumptions-that growth will average just 1.8 percent over the next 20 years, a lower rate than in any comparable period in U.S. history," notes economist Dean Baker.

"Social Security is projected to pay all promised benefits for the next three and one-half decades without any changes," stresses U.S. Representative Dennis Kucinich (D-Ohio). "Indeed, Social Security's financial solidity is improving, even as Congress does nothing. We don't need the stock market to solve the system's projected shortfalls-we only need to strengthen the economy and raise wages."

Regardless of the state of the economy, the U.S. continues to operate Social Security on a "partial reserve" basis, with more money coming in than going out. Tax revenues not needed to pay benefits are invested daily in low-risk U.S. government bonds.

2) What will happen to Social Security if part of the payroll tax goes missing? No one denies that Social Security may need some fine-tuning to meet future obligations, and no one knows how economic factors-including higher real incomes, productivity growth, and immigration-will impact tax collection before then.

But diverting billions of dollars from the Social Security trust fund to private investment accounts "will shorten the time it takes the fund to run out of money," points out Nebraska NEA member John Jensen, a 21-year trustee of the 7,000-member Omaha School Employees Retirement System. "The solution to that problem could involve raising taxes and reducing benefits."

3) What are the other hidden costs of Social Security privatization? "For those who are retired or near retirement, there will be no changes at all to your Social Security," Governor Bush assured a group of retirees in May.

That's the humane thing to do, but switching to a system of personal accounts will impose "transition costs," according to a recent report from the nonprofit, nonpartisan Economic Policy Institute. Additional money will be needed to continue to pay traditional Social Security benefits for the "next 30 to 40 years," the EPI report points out.

"Creating a large number of small accounts is the costliest way of handling the nation's retirement savings," the report emphasizes. "Annual administrative fees on mutual fund accounts average 1.5 percent of the value of the account. Over the 40 years of someone's working life, a 1.5 percent annual fee reduces the total value of his or her account by 30 percent. By contrast, Social Security's administrative overhead is less than 1 percent."

4) What guarantees come with private Social Security accounts? A payroll tax-funded, worker-controlled retirement account is a "very popular idea with young people," concedes Jensen, who teaches science research at Omaha South High School.

"But privatization advocates forget to tell young workers that in return for a possibly higher rate of return they'll lose a large portion of their Social Security benefits," Jensen adds. "The greater the return on any private investment, the greater the risk. Who will protect these employees from investment fraud? And who will protect them if, through a bad investment or a depression, their private accounts go way down in value?"

5) Are we willing to scrap America's social insurance program? Social Security is a social insurance plan, not an "asset-building" plan.

"Any kind of insurance spreads risk across the whole population," says NEA staff economist Stan Wisniewski. "As a nation, we've made a philosophical decision to share the risks of old age and disability through Social Security, which, unlike a private account, is a guarantee of benefits for life."

Take a couple of payroll tax percentage points away from Social Security, and you start to dismantle the whole system-just like what private tuition vouchers do to public schools.

"Instead of looking out for those in need, you start looking at 'rates of return' and subtracting resources from the existing plan," Wisniewski stresses.

This isn't just an issue for senior citizens. Social Security can impact you at any point in your life, be it as a survivor, a retiree, or a person struck with a disability. In fact, young people whose parents both die can use Social Security benefits to get through college.

"My parents were kept out of abject poverty through Social Security, like millions of others," concludes John Jensen. "This basic benefit can't be jeopardized for the benefit of political careers."

For more on Social Security, go to www.nea.org/socialsecurity.