|
Central Pension Fund It’s Time To Fix Social Security--Not Scrap It Contrary to popular opinion, the Social Security system in the United States is not in trouble. Indeed, the system is expected to take in more in payroll tax contributions than it pays out in benefits every year until 2013, continuing to build up a large surplus. It will only be after 2013 that, because of increasing retirements of the baby boomers--those born in the twenty-year period following World War II--that the Social Security Trust Fund will begin to pay out more in benefits each year than it takes in in payroll tax contributions, thereby reducing the surplus in the Trust Fund each year until 2032 when the surplus will be exhausted. After 2032, if nothing is done to the system, contributions received by the Trust Fund each year will only be sufficient to pay 75% of the current level of benefits. By law, Congress is required to make adequate plans to fund the Social Security system for 75 years. Accordingly, since current funding is only adequate for the next 33 years, Congress is now looking at alternatives to extend the system’s solvency to 2075. Today Congress has an unprecedented opportunity to fix the system because, for the first time in many years the federal government is operating with surpluses instead of deficits. This means there is money available in the federal budget to fix Social Security for the long haul. Unfortunately, instead of fixing the system, some in Congress are seeking to scrap Social Security altogether and replace it with a privatized system of individual accounts where each worker would have some or all of his Social Security payroll tax contributions placed in private individual accounts that they would be responsible for investing, and which would be their sole source of benefits at retirement. In essence, these privatization proposals would make Social Security into a national 401(k) plan, with the level of each person’s benefit entirely dependent on how skillful--or lucky--they are as investors. Wall Street investment companies love these privatization proposals because those companies would collect investment management fees from every individual account created. On average, these fees are typically 1% of the money in the individual account. This might not sound like much if you get a 20% return, that is, Wall Street collects 5% of your money because its 1% fee would represent 5% of your 20% return. But if you only earn 5% and Wall Street charges 1%, then they get 20% of your return. And, even if the markets have a bad year and you earn nothing, Wall Street still gets its 1%--not a bad fee for doing nothing. It is estimated that the private accounts proposals could pump $2.3 trillion out of the Social Security Trust Fund into Wall Street investments by 2013. At a 1% management fee this would mean an additional $23 billion in revenues for Wall Street every year. Currently, Wall Street collects no fees from the Social Security system because the Trust Fund, by law, can only be invested in U.S. Treasury obligations--there are no investment managers or management fees involved. With the opportunity to grab $23 billion a year of new business, many of the largest investment management companies in America are spending vast amounts of money lobbying to privatize Social Security. Not surprisingly, they have been able to convince several Congressmen and Senators to support their position. However these proposals might be packaged, and however attractive they might seem on first impression, everyone should understand that these proposals would primarily do two things: they would shift all retirement security risk to workers, and they would generate enormous new profits for Wall Street. Studies show that the current Social Security system can be fixed with only a few modest changes that will preserve its current benefit structure without risk to the workers who depend upon it. These changes include imposing the same payroll and benefit taxes on the rich as are currently paid by those with middle and lower incomes, and permitting a portion of the Social Security Trust Fund to be invested in stocks not just U.S. Treasuries. These changes would be adequate to preserve the system well beyond the next 75 years without creating unnecessary risks for workers or unwarranted profits for Wall Street. Originally published in the International Operating
Engineer |