Privatization Will Not Fix Social Security Problems

Posted September 23, 2005 at 2:49pm

The House Republican Social Security proposal is the latest in a series of efforts to disguise the basic Republican objective — privatizing Social Security.

The first effort was during the State of the Union address when President Bush started by saying he wanted to “strengthen and save Social Security.” But he went on to propose its privatization. His administration spelled out the broad dimensions of a privatization plan — diverting two-thirds of the employee’s Social Security contributions, massive borrowing, and a major reduction in guaranteed Social Security benefits so that they would shrink to essentially nothing, leaving people to rely instead on whatever was in risky private accounts.

The Bush administration misjudged the reaction of the public. Even though the president preferred not to discuss details of his proposed middle-class benefit cuts and “offsets” that would reduce guaranteed benefits for private account holders, Americans sensed that one did not save Social Security by replacing it.

They knew that there was a difference between Social Security “going bankrupt” as the president and his Congressional allies claimed, and the real situation facing Social Security — the shortfall projected for 2041 or 2052.

When Americans heard the president, who was scrambling to defend private accounts, say those over 55 were assured of their Social Security, it only made those 54 and younger more anxious about their retirement. Seniors receiving Social Security, as they expressed to me in many town hall meetings, knew Social Security had been critical to their independence and they were committed to securing the same independence for their children and grandchildren.

To the millions for whom the Social Security system has meant and will mean the guarantee of basic income support, there was a hollowness when they heard the president say that privatization would not affect benefits for disabled workers without listing any plans as to how that would happen. The nearly 7 million surviving spouses and children who receive Social Security because their family lost its primary wage-earner were even more anxious, since the White House did not even offer them an empty promise that their benefits were safe.

To a nation already confronting a dramatic change in four years — from a projected federal budget surplus of $5.6 trillion during the next decade to a deficit of several trillion — the more they heard of the trillions of dollars in the cost of private accounts, the less they liked them.

To millions of stockholders whose retirement savings have been rocked by the dramatic drop in the stock market and persons hit by the erosion of private employer pension plans, the president’s proposal to dismantle the guaranteed benefit structure of Social Security intensified their insecurity about the future.

The scrambling by proponents of privatization has now led to a new effort at disguise.

In their latest attempt, the House Republican leadership claims that its privatization bill would prevent Congress from using Social Security funds for other purposes by “stopping the raid.” However, the nonpartisan Congressional Budget Office concluded in its analysis of the bill, “It would not.” CBO concluded that the surplus “would still be available for use for other programs and activities.” In other words, as the bill’s own sponsor, Rep. Jim McCrery, acknowledged, “the cash could still be used the way it is now.”

Many Republicans even admit that their “stop the raid” rhetoric is just poll-tested camouflage for the real goal — completely replacing Social Security’s guaranteed benefits with risky accounts. One House Republican called it a “smoke and mirrors thing.” Another, a sponsor of the bill, called it the “first bite” at a bigger privatization effort. And the sponsor of the Senate companion bill said, “Our whole intent … is to come back for larger accounts.”

The House Republican bill introduced by McCrery and backed by the Republican Leadership, like the Bush plan, piles on additional debt. The CBO estimates that the Republican bill would increase the public debt by 20 percent by 2063.

In addition to creating this massive amount of debt, the Republican plan, like the president’s privatization scheme, would cut guaranteed Social Security benefits. For every dollar put into a private account, your Social Security benefit would be cut by a dollar, plus inflation and 2.7 percent interest. Our guaranteed benefit quickly becomes a guaranteed risk.

This latest Republican plan would also create a new government agency to manage the private accounts and invest them in government-approved investments. CBO estimates that administrative costs would be over $24 billion in just the first 10 years of the privatization — $16 billion charged to the Social Security Trust Fund, and another $8 billion charged to the taxpayers.

Democrats worked to build Social Security as the cornerstone of independence for American workers and retirees. Because we value Social Security, we have always been eager to sit down on a real bipartisan basis and discuss how to meet the challenge of saving and strengthening Social Security. We are not and have never been willing to participate in talks under the guise of “saving and strengthening” Social Security that would weaken and replace it. This latest House Republican bill makes it particularly clear that replacement, not strengthening, is the goal, since in it they abandon even the pretense of addressing Social Security’s long-term shortfall.

The reality is that Bush’s privatization plan was bad from the beginning, and it remains unwise no matter how House Republicans try to package it. The American public has rejected privatization, and it’s time for the president and Congressional Republicans to follow their lead.

Rep. Sander Levin (D-Mich.) is a member of the Ways and Means Committee.