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1/04/2005

Right Wing Lies About Social Security

As this issue starts to really heat up, I keep hearing about how great the privatization of Social Security has worked in Galveston County Texas and in Chile. I also hear how privatization will be good for young workers and families. I keep hearing how I will be a millionaire if I'm allowed to invest 2% of my current Social Security contributions in the stock market. The right keeps telling us this will fix Social Security for future generations. I decided to do some reading on the subject. Here is what I found.

First the "Galveston Plan". This plan seems to be a success actually, the thing the right leaves out when it sites it as proof that privatization can work, is that it is nothing like the plan Bush is putting forth. In Galveston people don't have control over their investments anymore than they do under Social Security. They don't have the option to blow it all on Gateway stock if they want to, it is all invested in GUARANTEED LIFE INSURANCE ANNUITIES.

The Honorable Ray Holbrook Former Galveston County Judge explains the plan as follows, "The Commissioners Court wanted a plan that had the exact, or better, benefits as Social Security at the same cost to the county and the employees. The Alternate Plan developed comprised a life insurance element for employees which would protect families of deceased employees, a disability insurance element as good as Social Security, and a retirement element with annuities purchased from major life insurance companies. "

This explanation also points up a fact that Social Security is much more than just a retirement savings plan. Galveston County had to make alternate plans for life insurance and disability insurance for it's workers. Where will the money for those benefits come from with less money going into the current system? Holbrook further explains, "...Investments in life insurance annuities are the same for all employees and are handled by an outside company that was chosen through a bid process. There is no need for each employee to be an expert in investments and there is no chance one employee will lose everything and others will make a mint." Like I said, Galveston seems to be doing it right, but this in not the system we are being sold.

When the right brings up Chile as a shining example of privatized Social Security they somehow forget to mention that the system was forced on it's population by fascist dictator Augusto Pinochet, draw your own conclusions. They also don't mention the fact that it has been a miserable failure. Even more amusing is the fact that Bush has leaned heavily on the advice of aman who once worked for said fascist dictator named José Pinera, former Minister of Labor. Pinera has stated that the average return on workers investments has doubled to over 11%, what he leaves out is that commissions and administrative costs have eaten more than half of those returns so the actual return on workers investment is just 5.1% meaning the average worker would have done better with certificates of deposit rather than private accounts.

The United Nations Program for Development 2000 report on Chile shows that at least half of the six million workers in Chile will get no benefits for retirement - except possibly $35 per month in welfare. Another 25 percent, low-earners who contribute regularly to their individual accounts, will have to rely on the minimum pension guaranteed by the government ($130 per month for anyone contributing to their individual accounts for 20 years). This minimum pension is but 75 percent of the poverty level minimum wage.

Bush keeps reminding that Social Security is running out of money and we have to fix it. He always says he has no intention of raising payroll taxes or cutting benefits. His only plan seems to be to allow "younger workers" to invest 2% of their current Social Security contributions in private accounts. Economists(pdf file) Henry Aaron, Alan Blinder, Alicia Munnell, and Peter Orszag found that "A recent analysis by the Center on Budget and Policy Priorities showed that if two percentage point accounts were established, all eligible individuals opted to contribute to individual accounts, and nothing else were done, the Social Security trust fund would be exhausted in 2023 (rather than 2037 under current law." As a result payroll taxes will still have to be increased or benefits decreased and not later, but sooner. This "plan" is not about fixing Social Security, it is about doing away with it.

Assuming that Bush actually does want to keep Social Security and not do away with it, we can also assume from his track record that he will not raise payroll taxes but instead cut benefits. This is the part that should scare the very same young workers that Bush has targeted as reaping the most benefit from his proposal. As the above mentioned economists found, "Most individual account plans therefore phase in cuts in Social Security benefits to attenuate the adverse impact on older workers. But if benefits are cut less for older workers, they must be cut
more for younger workers to achieve equivalent savings." When these economists factored in the reduced Social Security benefit for younger workers along with increased administrative costs of private accounts and transition costs from the current system to the new they found that everyone loses but especially young workers. Those that where age 55 in 2002 would realize 25% less under partial privatization while workers age 25 in 2002 would realize 54% less at retirement than under the current system.

Furthermore, the party of "family values" also ignores the fact that a privatized system would also discriminate against families that choose to have one spouse (presumably) the wife stay home with children. As Greg Anrig Jr., Bernard Wasow of The Century Foundation point out, "Of all groups, none has more to lose from the privatization of Social Security than women. Compared to the average man, the average woman works fewer years outside the home,
earns less per year, and lives longer after retiring. Together, these differences mean that women depend more than men do on spousal and survivors' benefits, they collect benefits for more years than men do, and a greater proportion of their total retirement income comes from Social Security." In addition Social Security provides for a 50% spousal benefit that private accounts simply couldn't provide, meaning that families where the wife stays out of the workforce to raise a family will have no way to replace that portion of Social Security.

There is much more, but it's late and I'm going to bed.


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