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Social Security - Part 4: The President's Plan


“One of my charges is to explain to Congress as clearly as I can, the crisis is now,” said President Bush at the end of last week’s economic summit in Washington where Social Security was the centerpiece topic. “I will also assure members of Congress that this is an issue on which I campaigned, and,” he continued with his trademark swagger, “I’m still standing.”

- The New York Times, 16 December 2004

In “crisis," he says. At other times, the president or his privatization supporters have said Social Security is in “unsustainable,” “broken,” “going broke.”

Listen carefully to Crabby Old Lady now: Not one of those words bears any resemblance to reality.

The Problem
As Crabby pointed out in her three previous backgrounders:

  1. Social Security, with no changes, will pay full benefits to all retirees, disabled and aged recipients without even dipping into the Trust Fund until 2018.
  2. Using the Trust Fund to supplement ongoing contributions, all Social Security recipients will receive full benefits until 2042.
  3. In 2042, the Trust Fund will be depleted and the number of contributors to Social Security will be able to provide only 75 percent of what will be needed to pay out full benefits.

The problem is that simple: We have 37 years to pump up Social Security before the well runs dry and privatization is not the only nor the best solution. So no matter what the administration tells you in coming months or what scarifying language they use to spin their position, keep those three pieces of information in mind.

Some Amazing Social Security Facts

  • 96 percent of American workers pay Social Security taxes and are entitled to collect benefits.
  • Today, more than 47 million American receive checks from the Social Security system.
  • The average monthly payment is a modest $895.
  • Social Security constitutes more than half the income of nearly two-thirds of retired Americans.
  • More than one-third (almost 17 million) of Social Security beneficiaries are not retired workers. They are disabled workers (5 million); spouses and children of retired and disabled workers (5 million); and spouses and children of deceased workers (7 million).
  • Social Security is more than half of the income of nearly two-thirds of retired Americans.
  • For 20 percent of retired Americans, Social Security is their only income.

What an extraordinary safety net President Roosevelt created. Had he done nothing else in his tenure, this should be enough to maintain his place in the small pantheon of great leaders for centuries to come. All we have to do to continue his good work is adjust the program a little to account for changing demographics as our population ages. And the solution, while it needs careful exploration and consideration, is as simple as the problem: find an equitable way to increase contributions to Social Security so those who become eligible after 2042, will be protected.

There are many ways this can be done and there is no dearth of ideas. Crabby will begin today with the president’s plan.

The President’s Solution
It is the responsibility of President Bush, in the new year, to present his proposal to Congress where it will be debated. So far, the White House has neither announced nor leaked much information beyond the president’s adamant statement that he will not consider raising Social Security taxes.

What is known is that in December 2001, a bipartisan Commission on Social Security, convened by Mr. Bush and sometimes referred to as the Moynihan Commission, delivered to the president a report [pdf] with its recommendations to “reform and strengthen” Social Security. There were three models, but no expert has taken seriously any but number two. It is this one that so far is being bandied about by supporters of privatization as the framework for Mr. Bush's proposal. Here are the basic provisions:

  • Younger workers could voluntarily invest two to four percent of their Social Security payroll tax, up to $1,000 annually, in a personal account.
  • In retirement, workers’ Social Security benefits would be reduced by workers’ contributions to their personal accounts.
  • The plan would set a minimum benefit for minimum-wage workers who had worked for 30 years at 120 percent of the poverty line.
  • The index for increases in the Social Security benefit portion would be indexed, beginning in 2009, to price inflation instead of wage growth as it is now.

Because Social Security would lose the two or four percent of contribution diverted to private accounts, the Commission noted that money would need to be borrowed to keep the Trust Fund solvent, and that is the reason for the estimate of one to two trillion dollars needed in transition funds if privatization is adopted. In regard to this, Crabby would like to remind you that everything the government does always costs more than the original estimate.

The Commission, blaming the short time available to them, had no useful recommendations for inclusion of the Social Security Income (SSI) and Social Security Disability Insurance (SSDI). [See Crabby’s Social Security backgrounder, Part 2.] It is unacceptable to do anything that shortchanges these programs and no privatization legislation should be allowed to ignore them or reduce their benefits which as they stand now, are minimal by anyone's estimation.

That's as much as anyone knows for certain, so far, about the president's basic idea for privatization. Next time, Crabby will tell you how opponents view this proposal and following that, she will outline other ideas being suggested to ensure Social Security meets its future obligations.

Privatization: Recent Developments
In the past week, a number of Democrats, and some Republicans too, have been voicing reservations about privatization as a solution to the Social Security problem.

Meanwhile, President Bush held a year-end press conference on Monday wherein reporters asked four or five questions about Social Security. In his first answer, the president seemed to be backing away from his hitherto insistence on Social Security “reform” as his top priority:

“First of all, let me put the Social Security issue in proper perspective. It is a very important issue, but it's not the only issue, very important issue we'll be dealing with.”

Perhaps sensing that it will be a harder battle than he once thought, the president backpedaled further by preparing to lay the onus on Congress if privatization is rejected:

“I don't get to write the law. I will propose a solution at the appropriate time, but the law will be written in the halls of Congress.”

Although his rhetoric was softened from his past relentless scare tactics, the president reiterated the need to fix Social Security - about which he is correct - although he seems to believe no one else knows this:

“I think it's important for me to continue to work with members of both parties to explain the problem. Because if people don't think there's a problem, we can talk about this issue until we're blue in the face, and nothing will get done…for a period of time, we're going to have to explain to members of Congress that crisis is here.”

And in regard to private investment accounts, he seems to have forgotten that the United States has lived through a terrible, decade-long Depression and several bad recessions:

“And the younger worker would gain a rate of return which would be more substantial than the rate of return of the money now being earned in the Social Security trust.”

That is simply not predictable. Even a president of the United States cannot tell the future and Crabby will soon show you how disastrous privatization could be.

...to be continued...

Social Security Privatization Series Index


Crabby Old Lady is indebted to Greg Anrig and Bernard Wasow of The Century Foundation for their extraordinarily clear explanation of the privatization issue from the opposition point of view, and she encourages readers to bookmark that link to the Foundation’s website for use during the debate. In the interest of fairness, extensive arguments in support of privatization can be found at The Cato Institute and The Heritage Foundation.

Comments

I have to admit that I like the plan the President spoke about during his State of the Union address. I also have to admit that my husband and I are one of the Thrift Savings Plan(TSP) particiapnts that the President spoke about in that same address.

My husband and I, as Military members and not in the younger croud either, began our participation in TSP 2 years ago. We had been out of the military for 10 years and this savings plan was not available durin gour previous service. After 9/11 and entering back into the service, this was one of the first things that we signed up for during the paperowrk portion of re-enlistment.

It has been really great. We choose a percantage that we wish to go to this plan and monthly monies are taken from our paycheck and put into the plan. Yes, this plan is tied to the market, but very safe options in the market. What else is nice is that we can change the percentage and the contribution allocation to different areas within the choices that we are given. Not once in 2 years has the plan lost any money, in fact we are making money on top of our contribution towards our retirement.

We have found this to be very beneficial. We can watch our retirement savings grow, we have choices that we can make about where our money goes and we will know by watching the account what we will have when the time for retirement comes. This to me is more comforting than just getting small stipens which is not even a living wage.

I have watched my parents try and survive on what they get from SS and it is more than difficult for them.

The option that my husband and I have, along with other investments we have made over the years will ensure that we will not go through what our parents are enduring. And the best part about it is that we were given the opportunity to take responsibility for our own savings for retirement by this added option that we have some control over.

Yes I know that we all have an option to save for retirement. But honestly, the younger folks like my daughters generation just don't think about going and opening a retirment account. Having this done through the TSP and having some active participation and control over the account sure does spark interest and gets people more active at lookiong at thier future survival.

I honestly have to say I love the plan and it is nice knowing what is there for me and my husband vs. not knowing anything until we get the first check from SS or we don't because there is no money there.

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