Not so fast on privatizing Social Security

InsideCapitolDome

Not so fast on privatizing Social Security

InsideCapitolDome

Not so fast on privatizing Social Security

Millions of U.S. elderly could be impoverished by proposals to cut taxes, dismantle the system

 

On Tuesday, December 8th, President Clinton will convene a White House Conference on Social Security Reform. Social Security has been enormously successful at lifting half of the elderly out of poverty and providing benefits to 44 million Americans who are aged, disabled or survivors of deceased workers.

With the baby-boom generation in their peak earning years, Social Security is collecting more than it is spending and placing the money in reserves for the time when the baby-boomers retire and collections are less than expenditures. These extra collections make up 98 percent of today’s so-called “budget surplus.”

Oregonians should be aware of two major threats to our current social security system – tax cuts and privatization. Both would trade in, not tune-up, Social Security.

While Social Security is fully funded now and for the next three decades, by 2021 the Social Security system will start drawing down its reserves. By 2032 the reserves will be spent and the Social Security system will have sufficient annual income to pay only about 75 percent of benefits. That is why Social Security is said to be “insolvent” after 2032.

Proposals to cut short the reserves – and exacerbate the insolvency – with tax cuts make little sense. The budget surplus should be used to save Social Security. We should increase the reserves by devising a public system that partly invests the Social Security trust funds’ reserves in a diversified portfolio through an independent board insulated from political control.

In addition to the tax cuts that spend the reserves necessary to meet future obligations, the Cascade Policy Institute and others want to shift a portion of Social Security taxes to private investment. These privatization proposals would inevitably require large cuts in Social Security’s core benefits and make retirement income overly dependent on the risks of the stock and bond markets.

Most Oregonians know that privatization has significant administrative costs and that we don’t live in Lake Wobegon where all or even most individual investors have above average returns.

A group of concerned citizens have drafted a “Statement of Principles for a New Century Alliance to Protect and Strengthen Social Security.” This Statement of Principals serves as a starting point for every Oregonian to engage in a dialog about Social Security.

It is incumbent on each of us to work to ensure that Americans of all ages will continue to be protected by Social Security from serious loss of income. It is time for Oregonians to join together to insist that Social Security’s central role in family income protection not be compromised, and to endorse the following principles for Social Security reform:

  • Social Security’s core benefits should remain universal and portable, guaranteeing monthly benefits that provide a decent income and that are adjusted to keep up with inflation, for as long as you live.
  • Social Security must continue to provide risk-free disability insurance protection for workers and their dependents. It must also continue to provide survivors’ insurance for spouses and children of deceased workers, and it must continue to provide benefits for those adults with severe disabilities who are dependents or survivors of their parents.
  • Beneficiaries who earned higher wages during their work life should continue to receive benefits related to their earnings history, and Social Security should continue to replace a larger share of low-income workers’ past earnings as a protection against poverty.
  • The impact of changes in the Social Security system must not fall disproportionately on lower income groups or on those whose work life has been physically demanding. Any changes should not make the financing of Social Security any less progressive.
  • Many privatization proposals finance the cost of private accounts partly by increasing the retirement age. Raising the age at which people can collect benefits is the equivalent of a benefit cut, with especially onerous impacts on those in physically challenging jobs or those with a lower life expectancy.
  • Basic benefit protections for women – who have lower lifetime earnings and more workforce absences because of care giving for children, parents, or spouses – should be preserved and strengthened.
  • While Social Security should continue as the foundation of our social insurance and retirement system, we also need new policies to encourage employers to provide good pensions and to spur private savings. However, this should be done in addition to, rather than at the expense of Social Security.
  • Private accounts should not be substituted for Social Security’s current core benefits. Diversion of Social Security revenues to pay for private investment accounts makes the projected long-term Social Security financing problems more severe, forcing deep benefit cuts and weakening the system’s ability to follow the principles above. Social Security benefits should not be subject to market fluctuations.
  • We should save Social Security first, instead of using budget “surpluses” to pay for tax cuts.

Discuss these principles with your family, friends and neighbors, co-workers, and members of your congregation.

It is time to demonstrate that there is a large and growing group of Oregonians who want to fix Social Security without “privatizing” or otherwise dismantling it or threatening its future.

Oregonians who respect the importance of honoring promises and commitments to future beneficiaries need to speak out that big tax cuts and privatization schemes, however politically packaged, are incompatible with “saving Social Security first.”

OCPP

OCPP

Written by staff at the Oregon Center for Public Policy.

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