The con of a 'new' Social Security program

July 29, 1998|By Robert L. Borosage

An article on Wednesday's Opinion Commentary page incorrectly described President Clinton's town meeting on Social Security as forthcoming. The meeting was held Monday.

The Sun regrets the errors.

PRESIDENT Clinton's upcoming Albuquerque, N.M., town meeting on "Social Security and the Market" is a backdrop for what could be one of the most audacious cons around. The play -- worth literally hundreds of billions of dollars -- is to turn part of Social Security into individual-risk accounts. That requires hoodwinking working Americans into accepting lower returns, higher costs and increased risks for the privilege of having Wall Street manage some of their retirement taxes.

A presidential legacy

The script is pretty basic: Scare people into thinking Social Security is going bankrupt. Ride the bull market in stocks to promise a painless rescue and potential wealth. Use Wall Street's financial clout to buy in research groups, arm conservative ideologues and enlist politicians. Finally, convince a lame-duck president that privatization will secure his legacy as a progressive reformer.


To date, the scam has gone forward without a hitch. Polls show one-third of Americans think Social Security won't be there when they retire. Conservative Republicans -- never fans of Social Security -- stand ready to strike. A gaggle of Democrats have signed up, including neoliberal Sen. Bob Kerrey of Nebraska and Sen. Daniel Patrick Moynihan of New York.

Like all great cons, the sting involves selling a string of deceptions, in this case to convince people that privatization is needed to "save Social Security."

Privatizers start by claiming that Social Security is going bust. But reports of its demise have been greatly exaggerated. These days, Social Security brings in more money than it pays out, accounting for virtually all the supposed budget "surplus."

But, privatizers warn, the retirement of the baby-boom generation will bankrupt the program. In reality, the shortfall Social Security projects -- in 35 years -- results more from the declining wages of the last decades than from retiring boomers living longer in the coming ones.

Even at the height of the boomer retirement, Social Security taxes will bring in about three-fourths of the needed revenues. This estimate is based on the pessimistic assumption that growth will average just 1.8 percent over the next 20 years -- lower than in any comparable period in U.S. history -- and decline more after that. If the economy simply grows in the next period as it has in the past 20 years, there is no shortfall.

Privatizers then offer a false answer to the inflated crisis. Privatization adds to the shortfall it claims to solve. The reason is simple. The taxes of today's workers help pay for the retirement of their parents' generation. If part of those taxes are diverted to fund private individual accounts, the projected Social Security shortfall gets bigger. In fact, it would be hard to invent a worse time to privatize -- just as the retirement of the largest generation in history has to be financed.

Thus, every plan for private individual-risk accounts, whether partial or full, requires deeper benefit cuts, higher taxes or greater deficits than simply mending Social Security. The glittering illusion of privatization -- higher returns for workers -- is a huckster's fraud.

The very notion of "return on investment" is disingenuous. Social Security provides workers with lifetime insurance against sudden death or disability. More than 13 million Americans now receive disability or survivors benefits. Social Security also guarantees benefits protected against inflation that cannot be exhausted, no matter how long you live. Private accounts alone offer neither the insurance nor the guarantee.

The true dupes of the big sting are younger workers, who are promised the chance to get rich. In fact, they get soaked by transition costs: paying for both the retirement of their parents' generation and the financing of their own private accounts.

Bad report

Recently, a commission of the Center for Strategic and International Studies, dominated by Wall Street executives, recommended moving about 20 percent of payroll taxes into private individual-risk accounts, and asked the Social Security Administration to estimate its projected returns. The actuaries revealed that workers would do better in the current system. The returns on private accounts could not make up for the costs of the transition. The commission buried the report.

To pay for the transition, privatization plans cut guaranteed benefits by 30 percent to 50 percent. Most mask their cuts through the cruelest tax of all: hiking the age for retirement to 70 or more.

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