Protecting Social Security

Social Security is the foundation of America’s retirement security and provides critical financial protection for survivors of deceased workers and disabled workers and their families. Two-thirds of older Americans rely on Social Security for half or more of their income.

In the last Congress, the UAW and a broad coalition of progressive groups were successful in stopping President Bush and GOP congressional leaders from privatizing Social Security. But the Bush administration remains committed to pursuing risky privatization schemes. Now that the Democrats have regained control of the House and Senate, we are in an even better position to stop privatization proposals. But we need to remain vigilant on this priority issue.

The GOP Social Security privatization proposals would have diverted a portion of workers’ payroll taxes that now finance the system into individual accounts. This would be a bad deal for workers because it would inevitably lead to deep cuts in Social Security’s guaranteed benefits. It is estimated that benefits would have to be cut by 46 percent for some workers. Under the GOP privatization schemes, workers and retirees would no longer be guaranteed the same lifetime, inflation-protected retirement, disability and survivor benefits. Instead, they would have to rely on the assets in their individual accounts, which could fluctuate dramatically with changes in the stock market.

Privatization would also result in a huge increase in our national debt. Over the next 10 years, the national debt would balloon by $1 trillion; over the next 20 years it would increase by $3 trillion. Much of this increased national debt would be owed to China, Japan and other foreign creditors. This would impose a huge burden on future generations.

Every year the Social Security trustees report on the financial health of the program. Social Security still takes in more than it pays out, adding to the Social Security surplus reserve that, by law, is invested interest-bearing U.S. government securities. In 2007 the Social Security Board of Trustees released the 67th annual report on Social Security’s financial status. The report projects that Social Security’s trust fund reserves will be exhausted in 2041, one year later than in last year’s projection. However, on-going payroll tax revenue will still allow Social Security to continue paying 75 percent of promised benefits after 2041. This latest report is consistent with previous reports and shows that Social Security faces a significant but manageable challenge. Acting sooner rather than later will help reduce the size of the eventual adjustments. But the trustees’ report indicates that Social Security does not face a deep structural crisis requiring drastic changes. This long-term challenge can easily be addressed by minor changes in the financing of the program. There is no need to undermine Social Security’s basic structure through risky privatization schemes.

There are a number of ways to strengthen Social Security. For example, funds can be diverted from general revenues, such as by repealing part of the Bush tax cuts, the benefits of which will disproportionately accrue to the rich. The cost of extending only the tax cuts for the top 1 percent of Americans, those currently making more than $400,000, is nearly as large as the estimate of the 75-year Social Security shortfall. Requiring upper-income individuals to pay Social Security taxes on their entire wages could also strengthen Social Security and make the system more progressive. Shortfalls in the system could also be addressed by requiring foreign companies that sell products in the United States to pay taxes to support Social Security, just like domestic companies.

Social Security is just that – secure. It has a number of key elements that no private program can provide.

• Social Security is a universal program that provides coverage for roughly 96 percent of working Americans. With the rapid and steady decline of private pension plans, it is even more crucial that Social Security is preserved.

• Social Security is portable and its pension credits can be moved from employer to employer without a worker losing retirement benefits.

• Social Security has a built-in automatic indexing component that protects workers from inflation.

• Unlike private accounts, Social Security has been shown to be highly reliable. In the 70-plus-years history of Social Security, it has never failed to pay benefits to those who are entitled to them. It has not been subject to the ups and downs of the stock market.

• Social Security uses a benefit formula that returns relatively higher benefits to low-wage earners, and goes a long way toward helping all Americans have adequate retirement income.

• Social Security has delivered a broad range of retirement, disability and survivors’ benefits to millions of people for decades at astonishingly low levels of administrative costs – about 1 cent of every dollar spent for benefits.

• Social Security is not an investment plan, but a system of social insurance providing income protection for families for retirement and in the event of disability or death.

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