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GRAY MATTERS: Preserving Social Security

SaulFriedman75x75 Pulitzer Prize-winning journalist Saul Friedman (bio) writes the weekly Gray Matters column which appears here each Saturday. Links to past Gray Matters columns can be found here. Saul's Reflections column, in which he comments on news, politics and social issues from his perspective as one of the younger members of the greatest generation, also appears at Time Goes By twice each month.


It’s past time that Social Security’s advocates, friends and beneficiaries quit playing defense for the single most popular American program and take the offensive against those who attack and lie about Social Security with intent to kill it.

First, find out if you have an IRA or other retirement saving accounts with a bank or brokerage or investment house that has been calling for the privatization of Social Security. If so, transfer the account (without penalty) and tell the broker why.

My broker/financial adviser with Merrill Lynch, is a champion of Social Security as a necessary and dependable leg of one’s retirement income. Ask your broker/financial adviser where he/she stands on Social Security privatization, i.e., changing it from pension and disability insurance into millions of 401(k)s subject to the rock and roll of the stock market.

If you’re affluent enough to have invested with the Blackstone group, transfer your money elsewhere. The hedge fund, whose trade in funny money helped bring on this recession, was founded by billionaire Peter Peterson, who retains an interest in the firm and spends millions through his various foundations to undermine Social Security with the claim that the program and the benefits for the undeserving elderly population’s are bankrupting the nation.

Second, Social Security advocate organizations and politically active beneficiaries and older members can join in the new effort by the National Academy of Social Insurance to expand Social Security to resume the coverage of 22-year-old students, especially the disadvantaged, which was ended in 1981, when Social Security was in imminent financial danger.

Such an expansion could dovetail with the new health insurance reforms which mandate coverage on their parents’ policy for children up to age 25. And it would not only help these families and kids pay for college, but it would strengthen the Social Security system with support from the young which has been eroding as too many the mainstream media buy into the Peterson nonsense that Social Security is in financial trouble. It isn’t.

Indeed, the 75-year-old program, which is in the black for another 30 years even if nothing is done, will outlast Blackstone as it has outlasted Lehman Brothers, Bear Stearns. Enron, Eastern Airlines and the Pennsylvania Railroad, a few recessions and lots of wars.

During those years, Social Security has never defaulted on a payment. Indeed, it expanded to cover the disabled and the spouses and children survivors of beneficiaries who died before age 66, like those killed on 9/11.

And since the fixes of 1983-4 by the Reagan administration and Alan Greenspan’s commission, Social Security has run a surplus every year, enough to guarantee benefits for the huge boomer generation. Even this year and next, when high unemployment forces the program to pay out more than it takes in in payroll taxes, Social Security will still run surpluses of more than $100 million.

That should lead defenders to their main point, which they should repeat like a mantra: Aside from its administrative costs, Social Security’s benefits for 50 million Americans does not contribute even one dollar to the federal deficit. Let me repeat for reporters who are too lazy to understand Social Security: Aside from its relatively small administrative costs (which are in the Social Security Administration’s budget), Social Security adds nothing to the deficit.

In fact, Social Security earns around $700 million a year, financing the federal debt by selling the Treasury its low-interest special issue bonds. Social Security could solve its long term fiscal problem if it could sell the government higher-interest bonds. But, of course, that would raise the deficit.

Ignoramuses suggest that these bonds in Social Security’s West Virginia vaults are nothing more than “worthless IOUs.” As the Chinese, Japanese and other investors know, U.S. IOUs are as good as cash. Indeed, if you examine your paper money or your employer’s check, they are IOUs until you spend or cash them out.

If the IOUs were “worthless,” why would Peterson and his greedy Wall Street and hedge fund investment banking allies be so eager to get their hands on the $2.5 trillion in Social Security bonds? What a tasty dish to set before the kings in their counting houses!

A friend at AARP says it will do no good to bash billionaires. I disagree because their message, backed by their money and the megaphone of the media, conservative Democrats in the Congress and the hysteria over the deficit has undermined support for Social Security and Medicare. And AARP has not been aggressive in helping to challenge Peterson and his deficit hawk allies who have been given aid and comfort by the administration which was bullied into creating the anti-Social Security commission on the deficit.

Fortunately, the latest defense and offense on behalf of Social Security has come from a definitive report on the future of the program prepared with the help of the Congressional Budget Office and published by the Senate Special Committee on Aging.

The seemingly alarming news is that Social Security faces a $5.3 trillion shortfall over the next 75 years. But the committee chairman, Senator Herbert Kohl (D., Wis.) echoes the current conclusion of Alan Greenspan, the Academy of Social Insurance and nearly every other expert, that the shortfall could be fixed with what Kohl called “tweaks.”

For Kohl and most advocates, cutting benefits is not an option, nor is reducing the criteria for the mandated cost of living (COLA) raises. And Kohl rejects the report’s suggestion that the future fiscal problems could be solved by raising the retirement age from 66 to 70. That would solve only 30 percent of the shortfall, and would delay and thus rob millions of workers of the benefits they now expect and count on.

Besides, many blue collar workers in tough, physically demanding jobs should not be required to work until 70; a coal miner may not be able to keep working after 66.

There are more likely alternatives which are obvious and simple: As the Social Security Trustees’ conservative outlook for the future reported last year, a 1.1 percent raise in the workers' and employers' payroll tax (now at 6.2 percent each) would wipe out the shortfall for 75 years. The trustees, incidentally, base their estimates on 1.5 percent annual growth in the GDP, which is far less than the past years.

More popular with the Obama administration, if Congress abolished the $106,800 cap on the wages subject to payroll taxes, the entire $5.3 trillion shortfall would disappear. Obama has suggested raising the cap to $250,00. Interestingly, several of the nation’s more honorable billionaires, like Warren Buffet and Bill Gates - junior and senior - have called for an end to the cap, noting that they are paying no more in Social Security taxes than a well-paid secretary.

As far as I know, they do not hold that Social Security’s assets should be put up for grabs on Wall Street. But then Buffet and the Gates's helped create wealth and something tangible, instead of a house of paper that collapsed.

You can see the Aging Committee’s information as well the views of advocates at the Committee's website, and you may read or download the full report here (pdf).

Write to saulfriedman@comcast.net


Comments

The latest rumor circulating here (NE OH) is that all on social security will have their benefits cut by $100 per yr. or per month (?)to help the states pay for unemployment benefits. Some are in a panic. I'm going to email your column to several friends. Thanks Saul. Dee

When thinking about cuts to Social Security and Medicare, it is important to understand that elders can have political power if politicians believe we will use it. We can fight off the deficit hawks (Peterson et al.) by scaring the pols silly (not so hard for most of them.) We vote.

A Forbes.com commentator recently put out a really clear article on the political power of elders that basically concludes we can fight this stuff if we decide to push the system. (He's not happy about that.) It's a useful perspective.

Dear Saul - I only hope social security continues...without it - we would be lost. I will forward to you the e-mail I just received from a friend...I don't know if it is rumor - but it frightens me somewhat. Hope you are healing and getting stronger.

Saul,

Thank you, my friend. As I am approaching my later 50's, and faced with a working lifetime of no pension or 401(K) funding until I was 50 years old (same for my husband), I am frightened about the prospect of no social security being available to us when we reach that magical age.

We have paid into the system for 40 years and refuse to become a burden on our kids.

We're running out of options...the most obvious being we will have to find work until they throw dirt over us.

Thanks for this excellent fact-filled piece on Social Security. This is a great reference to have for some concise specifics to refute the arguments of those who want to privatize our retirement benefits.

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