By now, everyone's heard of George W. Bush's plan for privatizing Social Security. The issue has been the focus of the President's domestic agenda since being reelected, and he's spent weeks touring the country in an attempt to garner support. Yet a recent Washington Post-ABC News poll shows that barely a third of the public approves of the way President Bush is dealing with Social Security, while 58 percent say the more they learn about Bush's plan, the less they like it. Could the administration's plan really be that bad? The answer, quite simply, is yes.
Social Security has been hugely successful on many fronts. Take poverty, for example: in 2000, 48 percent of Social Security recipients would have been poor without their government check. As most of you know, Social Security is financed by a 12.4 percent payroll tax. It is also important to note that this is the most regressive tax on the books, ending at the $90,000 income level. That means that a multi-millionaire pays no more Social Security tax than someone who earned $90,000.
"You ought to be trusted with your own money." Heard that one recently? Bush has used this line to sell his plan across America. Apparently, our President is unaware that Social Security tax revenue does not belong to those who paid it; it belongs to those who paid years ago and are now receiving Social Security benefits. Bush seems to think that the government simply stores your contributions in a safe somewhere, where it idly awaits your retirement. Of course, this is not how the program works. The money that the government collects from current workers goes straight to retired workers, with a good deal left over. In fact, for the past 20 years, the government has actually collected more than it needs to pay for the program's benefits. A lot more. Logically, we would save the surplus and store it in a Social Security safe of some sorts, right? Save it for a rainy day, when this looming financial crisis comes into fruition.
This idea was voiced by Al Gore in his 2000 Presidential campaign. Remember how much fun the Republicans had with Gore's "lock box" idea? Or the hilarious SNL skits featuring Gore and his plan? Well, the idea died when Gore lost, and the issue was swept aside for the next for years. No way Karl Rove would let his boss go near such a touchy issue as Social Security with reelection on the horizon.
Fast forward to 2005. Bush wins another election (this time in an arguably legitimate fashion), and almost immediately starts talking about the brick wall that awaits Social Security in the near future. We must do something now, he says. He claims that the program will go "bankrupt" by 2042. What will actually happen is Social Security will start paying out more than it takes in, essentially running on a deficit, something the federal government has been doing since its inception. Still, we can't allow that to happen, says Bush, even though he himself has ran up record deficits during his tenure.
So how do we solve the problem
without going back to the "lock box" idea? Our President proposes private retirement accounts. The idea is that current workers can choose to defer a certain percent of their Social Security tax to a private account for investing. Once you retire, you could do what you wish with those investments, though your Social Security check would be decidedly smaller. There are also certain "transition costs" associated with this kind of reform, and unless your returns in the market over 40 years beat the rate of inflation, you will never see a single cent. The government will keep it all to pay itself back for these transition costs.
There's no debating the shaky future of the program, as it will have a $3.7 trillion shortfall from 2042 to 2080. However, privatizing social security is not the solution. In fact, it would make the situation worse. Social Security depends on the contributions of younger workers to pay today's retirees; if some of that money were held back for individual private accounts, the government would somehow have to make up the difference, most likely through borrowing trillions of dollars and incurring even more debt. This is what the administration means when it says "transition cost."
There is one readily apparent solution that Bush refuses to recognize. When Bill Clinton left office, the government forecast a $5.6 trillion surplus over the next 10 years. After giving huge tax cuts to the wealthiest 1 percent (a group whose average income exceeds $1 million), Bush turned that surplus into a $6 trillion deficit. Over their full life, the Center on Budget and Policy Priorities notes, those tax cuts could cost the treasury $18 trillion - five times the cost of the Social Security shortfall. All the President needs to do is roll back those tax cuts, and he could easily solve the crisis.
Unfortunately, President Bush intends on making those tax cuts permanent. He wants to bail on Social Security because he has already given the government's surplus to his rich supporters, his "base," and he doesn't want to have to take it back. The public, for once, sees through Bush's rhetoric. The President's Social Security plan is the culmination of four years of fiscal malfeasance, and it's finally time to pay the piper.
