|
What everyone knows about social security may not so after all. On November 12, the Center for Full Employment and Price Stability (CFPES) hosted a day long conference to present critical analysis and solution to the social security “crisis.” Presenters at the University of Missouri at Kansas City event included CFEPS economists and experts from both coasts.
Everyone knows that social security is going broke. Everyone knows it is a bad deal. Everyone knows private retirement
accounts would do a better job. But it just ain’t so. Social security isn’t broken now. It might encounter difficulties sometimes in the future. But it is just as likely not to. If
there are problems, they can be fixed with relatively small changes. It makes little sense to “fix” future problems which may never occur. Proposals to privatize social security
don’t offer real fixes and could actually make things worse. There are other options to privatizing social security or keeping it as it is. Social security could be changed to promote greater
economic growth and equity while remaining a base for secure retirement in the future.
Randall
|
|
|
W. Randall Wray, CFEPS
|
|
Wray of the CFEPS started the conference with a blistering attack on President Bush’s Commission on Social Security. “The President’s commission claims that the Social
Security program in ‘unsustainable’ and requires a complete ‘overhaul.’ It also claims that the program is a bad deal for women and minorities. However,
any honest accounting of all Social Security benefits finds that the program is a good deal for disadvantaged groups. Social Security will become
a worse deal only if tomorrow’s politicians slash benefits–as the commission presumes they will–or increase the tax of the disadvantaged. A suspicion person might conclude that the
reason the report uses such scare tactics is because its authors fear the future Congresses will indeed keep their promises to maintain Social Security. Hence, the urgent need to privatize today.”
Max Skidmore, a political scientist and author of Social Security and Its
Enemies: The Case for America’s Most Efficient Insurance Program (Westview 1999), examined the mystery of what happened to the permanent
social security surplus which was projected by the trustees in 1983. Somehow those surpluses t
|
|
|
Max Skidmore UMKC
|
|
urned into projections of deficits sometime in the distant future. The strange thing is that the economy has actually performed better than the 1983 projections. “Nothing has happened
demographically to make the surplus vanish. Similarly, nothing has happened in the economy to make the surplus vanish,” Skidmore said. “The only thing that has
changed since 1983 has been the Trustee’s adoption of more pessimistic methods of calculations.” The Social Security administration has not released its data to the
public nor made its m
|
|
|
Christopher Niggle
|
|
Univeristy of California-Redlands
|
|
odels available for independent examination.
There are actually three projections made by the trustees. Christopher Niggle of the
University of the Redlands showed that the “intermediate projections” which receive the greatest publicity are actually “fairly pessimistic
.” The “low cost” scenario is a bit more optimistic and closer to the historical experience of the American economy. Under the relatively optimistic assumptions of the
“low cost” scenario, the social security trust fund would be in surplus for the entire 75 year period. The system would accumulate $15 trillion in assets–533% times the
estimated benefit outlays for 2075!
Barbara Bergmann, University of Maryland economist, said that talk of the
system being bankrupt “originates from people who don’t want to repair the Social Security system. They want to destroy it, and replace it with a ‘private’ system.”
The main advocates are Wall Street firms and financial companies which look forward to fat commissions of billions of dollars if social security funds were
diverted to them. “Other enemies” she added are “the folks who hate the idea of Federal government and are against anything it does. Social Security is the biggest
thing the Federal government does, so they hate it.”
|
|
|
Barbara Bergmann
|
|
American University
|
|
Claims that private accounts will provide much
higher rates of return were blasted by nearly every speaker. Wray pointed out that without the safety net of social security, private portfolio managers
would have to adopt far safer investment positions. Social security is indexed for inflation, Bergmann said, unlike the stock market. Niggle summarized a
variety of studies showing that real returns to private accounts are likely to be fairly low. A study by Aaron, Bliner, and Orzag found that the effective
return for today’s young workers under privatization would be lower than under the current system. Moreover, social security is not simply a retirement
program. It provides a wide range of benefits that private insurance programs, such as survivors’ benefits and disability, which private insurers cannot offer at a
realistic price.
What motivates the privatizers then? A possible answer was provided by
Michael Hudson of Institute for the Study of Long-term Economic Trends “in most c
|
|
|
Michael Hudson
|
|
Institute for the Study of Longterm Economic Trends
|
|
ountries that have privatized Social Security Management fees have been so high as to absorb the entire dividend flow. Under the Social Security Administration has
credited the system with compound interest, by plowing back the earnings on Treasury securities held by the system. Under privatization management companies would
collect the lion’s share of interest and dividends, preventing compounding.” Hudson presented a new twist on the debate arguing
that “it is not the Social Security system that is broke, but today’s stock markets that need an infusion of cash to cope with shrinking earnings
.” Proposals to privatize social security would become “the mother of all privatization giveaways,” he warned. This would lead to
an inflow of funds into the stock market and a financial bubble rather than real investment in new factories and equipment. Those who sold out at the right time or
who were lucky enough to retire at the right time would win big, but others would lose big.
But what if at some point in the distant future–perhaps by 2016, perhaps by
2038–social security’s payroll tax revenues fall short of program spending. The President’s commission painted an ominous picture of entire government
departments being shut down or huge increases in payroll taxes. Lost in all the doom-saying was the simple fact that the possible shortfall in social security funding
is about 2 percent of GDP–about the same size as President Bush’s tax cut. In a large prosperous economy like the United States, this is an amount that can be
easily handled. The problem, according to Wray is that the proportion of national income subject to the payroll tax has fallen because more income is received in the
form of nonwage income. Moreover, income has become more unequally distributed with a larger share of income going to the upper reaches and hence not subject to the payroll tax.
The solution Wray pointed out might be a small tax increase on a broader tax
base. As an example, he noted that “if the tax base included all national income, a Social Security tax rate of only 6.7 percent would cover all the benefits to be paid
in 2075! Contrast that with the current payroll tax rate of 12.4 percent of covered earnings. In other words rather than seeing tax rates rise of the coming decades,
we could actually have much lower tax rates if the tax base were expanded.”
The demographic transition as the boomer generation retires is often used
|
|
|
Thomas Palley
|
|
AFL-CIO
|
|
to argue that social security must be dramatically changed. The number of workers supporting each retiree has fallen from 42 in 1940 to five
in 1960 to just three today. Sometime in the next-60 years the number of workers supporting each retiree will fall from three to two. But this ratio looks at only one end of
dependency. It overlooks children who are supported by workers as parents or taxpayers. Thomas Palley, assistant director of public policy for the AFL-CIO, presented figures
which showed that the total dependency ratio actually peaked in 1960 at 0.904 and will be only 0.842 in 2072.
In considering whether social security for boomers will be affordable, Palley
stressed that we must look at real wages. If real wages grow at the rate predicted by the trustees, average real wages in 2075 will be 200 percent greater than in
2000. If the projected funding shortfall was funded entirely from payroll taxes, the average worker would still be 181% better off.
|
|
|
Stepanie Bell
|
|
CFEPS
|
|
Stephanie Bell examined the financial aspects of social security. The real problem, she said is not a financial one. The
trust fund, she said, is an accounting device. Attempting to use a surplus of payroll taxes today to shore-up social security in
the future merely trade one government asset for another and one liability for another. “An accumulation of credits to a
Social Security Trust Fund is neither necessary nor efficacious...it does no good to run a budget surplus which simply reduces
the demand for currently produced goods.” Bell concluded that social security should be returned to a pay as you go
system. The present system penalizes today’s workers. It paid for the military buildup and trickle-down economics, in the Reagan years. Today it is paying for
the massive Bush tax giveaways to millionaires and corporations. As Barbara Bergmann said, fifteen percent of regular government spending, which used to be
financed mostly by income and corporate taxes, is not being financed by money from the regressive Social Security tax.
Several of the economists, including Thomas Palley of the AFL-CIO,
Niggle, and Wray presented ideas about how social security might be structured to be even a better job by increasing economic growth, efficiency, and equity. There
are many options and possibilities which should be on the table instead of the privatization scams. Instead of attacking the most successful and popular
government program ever adopted by our nation, we need to turn in a different
direction. “The real source of the problem,” Randall Wray said, “is the growing
inequality of income and the deterioration of opportunities for too many Americans.” And the real solution lies in “increasing the supply of good jobs, expanding
educational opportunities, raising the minimum wage, providing universal health care coverage, and widening the social safety net.”
|
