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Central Pension Fund Privatizing Social Security: Risky for Workers But A Sure-Thing for Wall Street The political campaigns of Vice President Al Gore and Governor George W. Bush, are bringing renewed debate over the issue of “privatizing” Social Security. The term privatizing means diverting a portion of the taxes which currently fund the Social Security system to investments managed by private investment firms. The Bush plan, as currently discussed, would permit 2% of the 12.4% Social Security payroll tax to be diverted from the Social Security Trust Fund and invested by employees directly with private investment firms. Needless to say, private investment firms are vigorously supporting privatization plans because they would produce hundreds of millions of dollars of additional fees for these firms. It is estimated that diverting 2% of payroll taxes would produce $87 billion of new stock market investments in the year 2002. Typical fees charged by private investment firms are from 1% to 3% of the funds invested. Just a 1% fee on $87 billion would produce an astounding $870 million in additional fees for the investment industry every year. It is little wonder why Wall Street is so enthusiastically supporting the privatization of Social Security. But, while the Bush plan would be wonderful for stockbrokers--$870 million in fees buys a lot of Ferrari automobiles--what would it mean for real workers? First of all, privatization would replace certainty with uncertainty. Social Security benefits for all workers making private investments would be cut to take into account the reduced tax revenue, with the expectation that the lower benefits would be made up by the returns the workers would make on their private investments. But, as we have seen in recent years, the stock market can go down as quickly as it goes up. While the rich can afford to gamble with their Social Security benefits, because they have lots of other money to fall back on, most working people cannot. Current statistics tell the story. For the worker with a history of average earnings who retired in 1999, the monthly benefit was $825 per month. For the rich that may not seem like much, but for average folks that is an important, predictable piece of their retirement security. Indeed, Social Security is the major source of retirement security for 63% of retirees. It is estimated that the Bush plan would require that the future benefits for young workers would be cut from $825 to $481 per month if 2% of taxes were directed to private investment accounts. In theory, the difference between the $825 and $481 would be made up by the investment returns that individual workers would make on their private investment accounts but, like all theories, this one is based upon averages, that is, the average stock market return would make up for the loss in benefits. However, an average return means that half do better and half do worse than the average. The obvious question is: who wants to gamble that they will be in the half that is above average, when they are gambling their retirement security? Vice President Gore proposes a different approach for guaranteeing the long-term health of Social Security. Gore proposes maintaining the current system by transferring portions of the federal budget surpluses to Social Security in such amounts as necessary to assure its funding for the next 75 years. While the Gore plan would maintain the current benefit structure, retirement ages and cost-of-living increases, it would not permit private investment accounts and, therefore, would deny Wall Street investment firms the source of at least $870 million in new annual fees. Needless to say, Wall Street vigorously opposes the Gore plan. As this important debate proceeds in this year’s political campaigns, we can expect Wall Street investment firms to open their checkbooks wide to support any candidates who favor the privatization of Social Security. After all, it’s just good business! Originally
published in the International Operating Engineer |