It’s hardly begun and already the Social Security debate is out of control. The hysterical contingent, dispensing dubious facts and a few outright lies, shouts Crisis! Disaster! Bankruptcy! in support of President Bush’s claims. Only private investment accounts will “save” Social Security and make everyone millionaires in their old age.
Crabby Old Lady is old enough to know – as should anyone who holds a high school diploma – that if it sounds too good to be true, it is. Average income in today's dollars is about $42,000. The administration's current privatization proposal would allow up to two percent of an individual's Social Security payroll tax to be invested in a private account. That's $840 per year. Multiply that by the average worker's professional life of 45 years and there is a total principal investment of $37,800. Nobody's getting rich on that.
One enterprising retiree - obviously an above-average wage earner - ran the actual numbers. Stanley Logue paid into Social Security for 45 years until he retired in 1994. He compared the return on his contributions to the Trust Fund with what he would have gotten had he been able to invest the same amount of money over the same period of time in the Dow Jones Industrial Average, including dividends.
“To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.
“It’s an astonishing finding. The DJIA represents blue-chip stocks. Social Security invests in U.S. Treasury bonds. Over long periods of time, stocks have consistently outperformed bonds. So, you would think that Logue’s theoretical stock investments from 1950 to 1994 would have surely outpaced the return on government bonds.
“The fact that they didn’t illustrates one of the hard truths about stock investing: Timing matters.”
- - The Christian Science Monitor, 27 December 2004
The truth about President Bush’s claims for private accounts is that depending on accidental timing of birth and retirement, a few people might make a killing, but the majority will not.
The counterbalance to the hysteria of the pro-Wall Street crowd are the dissenters. To convince enough of the right people that private accounts are the wrong choice, however, they must do more than repeat the obvious success of the 70 years of Social Security, which is mostly what they have done to date. To have an intelligent public discourse, alternative solutions are in order and Crabby is waiting to hear more. Here are a few that have surfaced so far:
Raise the salary cap on which Social Security payroll taxes are collected
There is no reason to have any limit. Let Social Security collect the payroll tax on total salary earnings. The folks who make a lot of money will squeal, as will corporations which match contributions. But Crabby Old Lady says, “let ‘em squeal.”
In her working life, the limit has gradually increased by a factor of more than 21, from $4200 in salary to the new 2005 limit of $90,000 without putting a crimp in her lifestyle. It is a small price for the rich to pay to ensure a minimal retirement income for ordinary folks.
Cut Social Security benefits to those who don’t need it
Crabby knows a woman, a widow who has never worked a day in her life and whose husband left her with the kind of wealth 99 percent of us can only dream of. Yet she collects her survivor’s benefits – a few hundred dollars a month - and insists it is her due.
A “means test” for benefits would eliminate this obscenity without harming anyone while keeping many millions of dollars to help maintain benefits for those who need it.
Raise the retirement age
We are living longer and healthier lives than when Social Security was created in 1935, and already, the age at which full benefits are paid is being slowly increased. A majority of baby boomers (born between 1946 and 1964) say they expect to continue to work past age 65. Increasing retirement age further means more workers will contribute longer, building up Social Security reserves.
Roll back the Bush administration’s $1.35 billion tax cut
President Bush entered office with a budget surplus of $127 billion and turned that into a deficit of astronomical proportions. To have created a tax cut that primarily benefits the rich, particularly in the midst of an expensive war in which soldiers go without armor, is a pretty good definition of insanity. Roll them back.
The Bush administration would have us believe that private investment accounts are the only possible solution to guaranteeing future retirement benefits, and that is simply not true. Crabby will leave the number crunching to the experts, but the above suggestions – and more that will be forthcoming when the new administration gets rolling after Mr. Bush’s inauguration in late January - must be considered. This is a serious issue and it is unconscionable to not put all reasonable proposals on the table.
Next time, Crabby Old Lady will summarize for you the reasons of those who oppose privatization.
...to be continued...