Join the debate on Social Security Forum in Baltimore will tackle problems of retirement program

June 14, 1998|By Sam Beard

Join us. Social Security's future is being debated, and President Clinton has begun a nationwide bipartisan dialogue. That's why Economic Security 2000 and the National Committee to Preserve Social Security and Medicare have scheduled a forum in Baltimore on June 22. We want you to join us.

Social Security is one of America's most successful social programs. It has lifted 16 million senior citizens out of poverty. It protects against what President Franklin D. Roosevelt called the "hazards and vicissitudes of life" - disability, old age and the death of a family's breadwinner.

But Social Security faces real problems. Social Security is "pay-as-you go." Workers pay 12.4 percent on earnings of up to $68,400, between themselves and their employers, to pay benefits for those already retired. No individual Social Security accounts accumulate for workers' retirements.

This structure relies on a growing work force and a limited number of retirees. In 1935, when Social Security was set up, 40 workers supported each retiree with taxes of 2 percent on the first $3,000 of wages. National retirement age was 65. Life expectancy was 63.

Today, three workers support each retiree. Life expectancy is 76. In the coming decades, 76 million baby boomers will retire. Less than two workers will remain to support each recipient.

What's more, overall retirement security relies on a "three-legged stool." Leg one is private savings. Leg two is a pension. Leg three is Social Security. This stool is broken. Nationwide, most families have less than $1,300 in total savings. Most of the people receiving pensions get less than $3,000 annually. And Social Security needs fixing. There are three basic options.

Option one maintains Social Security's "pay-as-you-go" system by creating a privately invested government trust fund.

Opponents worry that Social Security would become a political football, with politicians lobbying for investment for the funds. This solution also assumes an existing trust fund asset of $3 trillion. To find the $3 trillion, the government has three choices - cut government spending; add $3 trillion to the national debt; or tax every American family $43,000. Then, this $3 trillion supports Social Security for just 16 years - until 2032, when deficits resume at $241 billion per year.

Social Security payroll taxes are highly regressive. A $10,000 worker pays $1,240 a year to Social Security. Yet, not a penny is being set aside or invested in real savings. The same $1,240, if it was invested every year over a working lifetime, could reasonably become $180,000.

Option two incorporates individually owned and controlled savings accounts into Social Security.

This option saves the current "floor of protection" for every retiree, orphan, widow and disabled American. Individual accounts then add asset ownership to every low- and middle-income American and restore the savings leg to the retirement security stool.

Opponents of individual accounts cite stock market risk and bad investment choices. But proposals to add individual accounts address these concerns by limiting individual choice and basing investment on similar federal retirement savings plans and pension/401(k) programs.

Option three "privatizes," with individuals "opting out" of Social Security. Privatization substantially lowers the safety net and threatens basic income for millions of seniors. Most Americans find this option far too risky.

Economic Security 2000, the nation's first nonpartisan grass-roots organization dedicated to saving and reforming Social Security, comes to the Social Security dialogue from a different perspective: Through Social Security, every American can have the chance to build savings during their working lifetime. Albert Einstein was once asked, "What is the greatest force on earth?" He replied, "Compound interest."

Simply stated, money makes money. One-third of income in America comes not from jobs and wages but from returns on money people own - from wealth. A job might pay $10,000 or $20,000 a year. But if you own $50,000, at a modest 8 percent interest rate, you will earn an additional $4,000 that year.

I spent my professional life creating economic opportunities for low-income Americans. Over 25 years, through the National Development Council, I helped create more than $500,000 jobs. I worked with four presidents - Richard M. Nixon, Gerald R. Ford, Jimmy Carter and Ronald Reagan - to build more than $25 billion of economic development.

Today, opportunities for low- and middle-income Americans are few. America is becoming two societies, with most of our prosperity flowing to the top 25 percent of families. The top 10 percent of Americans own 4,600 times more wealth than the bottom 20 percent. The bottom half of America owns less than 2 percent of all financial wealth. This is disgraceful and we can do better.

With Social Security, we can open income from wealth to all low- and middle-income Americans, most of whom currently don't have a dime saved.

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