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Edited on Mon Feb-07-05 11:06 AM by Liberty Belle
SOCIAL INSECURITY?
OPPOSITION GROWS TO PRESIDENT’S
PROPOSED CHANGES FOR RETIREES
By Miriam Raftery
The American Association of Retired Persons (AARP), the nation’s largest senior citizens lobbying group, has announced its opposition to President Bush’s plan for privatizing a portion of Social Security.
“We are dead set against carving private accounts out of Social Security taxes,” William Novelli, CEO of AARP, said. “We can fix Social Security without dismantling it, which is what private accounts carved out of Social Security do.”
The AARP joins a growing chorus of concerns voiced over the President’s proposal, including objections from several prominent Republicans, leading Democrats, labor unions and other groups.
The President plans to unveil proposed legislation that would allow workers to divert some of their Social Security payroll taxes into private accounts. (The White House prefers the term “personal accounts,” according to a 104-page Republican blueprint on marketing Social Security, which was leaked to the media. That blueprint urges GOP lawmakers to tout “personalization” through “ownership” and to avoid the term “privatization” because it “connotes the total corporate takeover of Social Security.")
Supporters of the “ownership society” concept maintain that younger workers would have the opportunity to achieve higher returns on their investments over time.
But critics argue that the proposal amounts to gambling with retirees’ futures. What happens if individual make bad investments, such as stock market losses or investing stock options in Enron or another company that goes bankrupt?
“Taking some of the money that workers pay into the system and diverting it into newly created private accounts would weaken Social Security and put benefits for future generations at risk,” a letter to AARP members signed by Novelli stated.
The normally conservative Wall Street Journal agreed. “Less well advertised is that, in return, workers would forfeit some traditional benefits when they retire,” a January 30th article in the WSJ stated. The article concluded, “Private accounts not only wouldn’t restore Social Security’s 75-year solvency, they would add to its immediate shortfall: Taxes diverted to workers’ own accounts would have to be made up somehow, to pay today’s retirees.”
To cover that shortfall, the White House has suggested borrowing up to $2 trillion, adding to the national debt. “I’m certainly not going to support diverting $2 trillion from Social Security into personal savings accounts,” Republican Senator Olympia Snowe (R-Maine), a member of the Senate Finance Committee, told CNN.
In a Democratic radio address on January 15th, Senator Debbie Stabenow (D-MI) pledged that Democrats would fight to keep the “security” in Social Security. Stabenow warned that privatization could lead to benefit cuts of up to 25% for some current workers and up to 45% for retirees in the future. Workers retiring in 2075 “would receive monthy Social Security benefits 46% lower than under the current structure,” a recent Washington Post article estimated.
Details of the President’s proposal have not yet been disclosed, but insiders suggest the plan may initially allow private investment in only a handful of specific funds to lessen risk.
Some have raised concerns over how privatization would impact the disabled. Currently, workers who become too ill or injured to work may retire early and draw full Social Security benefits. Under the President’s plan, critics fear, workers who are disabled early in life may face shortfalls if they haven’t earned enough through private accounts.
While supporters and opponents of Social Security privatization dispute the impact, both sides agree that some changes will ultimately be needed. That’s because the the baby boomers will draw Social Security benefits as they reach retirement age, outnumbering younger workers paying into the system. But proponents and critics disagree on the severity of that problem—and how it should be solved.
President Bush maintains that allowing personal investment is necessary to save Social Security. “By the time today’s workers who are in their mid-20s begin to retire, the system will be bankrupt,” the President stated in a speech on January 11th in Washington, D.C.
The nonpartisan Congressional Budget Office, however, reports that Social Security could fully fund 100% of retirement benefits for nearly 50 years (through 2052) even if no changes were made, and could continue funding retirement benefits at 70% for decades more.
“I don’t believe there’s a financial crisis,” California Senator Diane Feinstein said. “I think to put this out as a financial crisis is misleading.”
Senator Barbara Boxer (D-California) expressed concern over the Bush privatization plan in a letter to a constituent, noting “we cannot afford to divert needed funds away from an already stressed Social Security system.” While pledging support for ensuring the short- and long-term health of Social Security, Boxer added, “Benefit cuts or reductions in the standard of living for seniors are not the answer.”
The Cato Institute, a conservative think tank, reports that Congressman Duncan Hunter, who represents East County, supports privatization. Hunter responded “Yes” when asked in a Cato Institute poll, “Do you favor or oppose Social Security reform that would allow workers to save a portion of their payroll taxes n a personal retirement account?”
Another Cato poll found that just 14% of voters agreed that Social Security is “in crisis,” but most feel that some changes are needed. Cato found 55% of seniors oppose allowing younger workers to invest in private accounts, while 61% of younger workers support the proposal.
An AARP poll, however, showed dramatically different results. AARP found that while 43% initially favored private accounts, support dropped sharply in all age groups when people polled were told that consequences of the change might include reduced benefits at retirement, a ban on early retirement, and creation of a new government agency to administer the program at a $1 trillion cost.
A whopping 83% favor strengthening Social Security—and 60% think private accounts would hurt Social Security, according to AARP. A poll by the Wall Street Journal and NBC News revealed that an overwhelming 95% of Americans oppose cutting Social Security benefits, making the president’s plan a tough sell.
To prevent benefit cuts, some are calling for other options to be considered. Republican Senator John McCain of Arizona told CBS’s Face the Nation that a hike in payroll taxes “has got to be on the table” along with other financing options. House Ways and Means Committee Chairman Bill Thomas, also a Republican, has said that Congress should consider a value-added tax or other changes to fund Social Security.
Democrats argue that the current system amounts to a regressive tax, since Social Security is withheld only from the first $90,000 in income, so lower income people pay a disproportionately high share in relation to what they earn. Raising that level to $140,000 or increasing the retirement age gradually to 70 would be better solutions than diverting funds to private accounts, many suggest.
Who benefits from privatization?
Diverting just 4% of Social Security into private accounts would generate windfall profits of $75 billion a year for financial service firms, analyst with CIBC World Markets in New York, reports. Privatization would also benefit stock brokerage firms and mutual fund managers. According to OpenSecrets.org, the largest contributions to the Bush reelection campaign in 2004 came from the financial/insurance/real estate sector, which donated over $33 million. The two top contributors to the Bush campaign, Morgan Stanley and Merrill Lynch, both stand to reap hefty profits if workers are allowed to divert SSI withholdings into private investment in the stock market.
Most would agree that Social Security represents a social improvement over Colonial American era “Poor Laws” (which forced some impoverished seniors to wear a “P” on their foreheads), or almshouses to which some elderly poor were relegated in 19th Century England.
Social Security began in 1934 as part of the New Deal signed into law by President Franklin Delano Roosevelt during the Depression. Before Social Security, 50% of America’s senior citizens were living in poverty, including some who lost savings in the 1929 stock market crash.
Today, less than 10% of senior citizens in the U.S. live below the poverty line, thanks to Social Security. The program was hailed as modernization by progressives and criticized as big government intervention by others.
President Roosevelt’s grandson, James Roosevelt Jr., has become a vocal critic of the Bush plan—and of the President’s inaugural speech reference to FDR. “The implication that FDR would support privatization of America's greatest national program is an attempt to deceive the American people and an outrage,” Roosevelt wrote in a Boston Globe editorial. Roosevelt also sent a letter asking Progress for America, a conservative organization, to cease using FDR’s name in its advertising campaign.
Senate Democrats are calling on the Government Accountability Office to investigate alleged illegal use of taxpayer funds by the White House to promote the President’s plan for partial privatization of Social Security. At a hearing Friday, Democratic Policy Committee Senators heard testimony from two Social Security Administration employees who said the agency’s marketing plan inappropriately requires workers to publicly promote the Bush plan, which the workers view as a partisan political message.
“I do not believe it is proper for public funds or public employees to be used to stir up fear,” testified Steve Kofahl, a Social Security claims representative.
“The president cannot turn the Social Security Administration into his own lobby shop,” said Senator Frank Lautenberg (D-N.J.). Democrats liken the effort to recent revelations that federal agencies have paid newspaper columnists and TV commentators to promote White House policies—a tactic that violates federal prohibitions on covert propaganda, undermining credibility of the media and the Administration.
Republican National Committee spokesman Brian Jones dismissed the Democrats’ concerns as partisan politics, adding that the hearings “deserve an A for stagecraft and an F for honesty.”
The latest twist is a debate over whether changes should be made to Social Security based on race. Bush has observed that African-Americans are more likely than whites to die before receiving their fair share of benefits.
But an Associated Press article on January 29th points out that statistically, African-Americans actually benefit more from Social Security under the present system than whites. Lower-income workers receive more benefits than higher-income workers in relation to amounts paid in. In addition, more African-Americans that whites receive benefits from payments made to the disabled and to the spouses and children of deceased workers.
Support for private accounts is a reversal of Bush’s statement in the debates that he did not support privatization of Social Security. He now maintains that voluntary personal accounts will provide “ownership” benefits to workers, along with an opportunity to build retirement nest eggs that can be passed on to their heirs. The program will “strengthen and save Social Security for generations to come,” Bush says.
Workers’ representatives draw a different conclusion. The AFL-CIO website has action plan for labor union members and others, along with this statement: “President Bush’s plan to replace Social Security’s guaranteed benefits with risky private accounts would hurt working families. It would force drastic cuts in benefits and saddle our children with $2 trill in debt, most of which we would owe to foreign countries such as China and Japan.”
Citizens interested in voicing their opinions on Social Security legislation can obtain contact information for Senate and Congressional members at www.congress.gov.
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