February 12, 2005
Social Security - How I See It
The pundits are debating Social Security privatization all over the place. All kinds of numbers and projections are being thrown around. Since the number crunching depends on who is counting what let's just talk common sense. First, let's acknowledge that there is a long-term problem with Social Security because of the aging population. Obviously, there need to be adjustments in order to fix that long term problem. Second, Social Security only pays retirees about 35% of their yearly earnings. For lower wage workers in particular, this is a paltry and inadequate amount. Therefore, we face some degree of shortfall roughly 40 years from now, and amounts paid currently are inadequate.
Now, let's get real. The President's plan is to create "personal accounts." He refuses to increase the FICA cap above the current $90,000 limit. He is not increasing benefits. According to Bush's Social Security reform campaign, workers will be able to take a portion of the money that they would have paid into Social Security. This amount will then be deducted from their Social Security account. In other words, they will get less from Social Security than they would have if the did not have a "personal account." If their investment strategy works, they will end up with whatever they earned over whatever their benefits would have been if they did not have a "personal account". In other words, the current scheme at best gives them a slight amount more in retirement funds than if they did nothing. At worst, they end up with less - perhaps much less.
One of the major problems with "the plan," is that it does NOTHING ABOUT THE PROBLEM. It does not address, the shortfall 40 years out, and it does not address the inadequacy of the benefits. All that it does do is put a lot more money into the financial industry, and allows the total theft of the surplus which is being generated every year.
In order to address the aging population issue, the Congress approved raising the FICA cap from $83,000 to $90,000. (The FICA cap is where the collection of Social Security tax stops). This was to increase the Social Security surplus in order to address the future shortfall. As a result of that a tremendous surplus is being generated (in excess of $3 trillion according to the OMB). However, that surplus is being raided in order to fund the massive deficit that Bush is generating. The surplus is not protected. It is not part of the Social Security Trust Fund. The surplus, for all intents and purposes exists only on paper at this point.
So here are my recommendations to "save" social security.
1. Make the damn fools pay back what they have raided from the Social Security surplus.
2. Put the surplus directly into the Social Security Trust Fund and make it off limits for other spending.
3. Remove the FICA cap. If you have income, then it should be taxed.
4. Expand the amount of money that can go into Individual Retirement Accounts (or other such vehicles), and guarantee a decent return on them. Why? To encourage people to save.
5. Increase the benefit level - particularly for lower wage workers.
p.s. Bush talks about fewer workers paying into Social Security declining; however, he doesn't mention the millions of workers who are delaying retirement or returning to the workforce after retirement because they can't live on Social Security payments. Guess what? They pay social security taxes too!
Sources
Office of Budget Management, 04/04/2000, What's the Social Security "Surplus" Got to Do with It Anyway?
Martin and Kathleen Feldstein, 1999, Social Security's surplus
The Concord Coalition, 1998, Borrowing Social Security Surplus for Other Spending Allows Claim of "Balanced Budget" by 1999
Daniel Gross, Slate, 1/09/2004, The Unlocked Box: How Bush is plundering Social Security to close the deficit.
Posted by rowan at February 12, 2005 1:23 PM | TrackBack | [eMail this article!] |This issue really scares me. My parents' only source of income is SSA or SSI. If they lose even a small portion of their already limited benefit, they will not be able to make ends meet. I have no way of providing for them.
There has to be a better solution. Privatization of programs has only created more problems. It boggles my mind to think that these people actually think that privatizing Social Security is going to help. This philosophy appears to only benefit high wage earners. Those at the lower end of the wage scale will not have enough to survive on when the time comes. Also, it is difficult to save money when one lives from paycheck to paycheck. Many workers do not have access to IRA's or other plans. They make so little money already.
In thinking about solutions, I thought about all the social ills that make financing like this necessary. In order to truly change the way this all works, many of our current social philosophies would have to change. How we view our responsibility to those less fortunate, disabled, or just very well aged, determines how we respond to those responsibilities. At this point, most people do not feel they should be responsible for anyone but themselves. In past times, this was not so.
Also, business owners' primary focus is increasing their profits without regard for the well being of their employees. Mr. Scrooge exists in large numbers in all industrialized nations. Greed and the lack of compassion rules their business choices. This process makes me think of the Egyptians rule over the Jewish slaves. A nation built on the back of slaves, while the Pharoah and his subjects sit pretty, wallowing in their own self righteousness.