Counterpoint: the case against social security reform

International Social Science Review, Spring-Summer, 2005 by Jason Burrell

Reform is commonly associated with restructuring a current policy or program with the goal of improving a model that adapts to changing needs or conditions. On February 2, 2005, President George W. Bush delivered his annual State of the Union address to the American people. In so doing, he presented his agenda for the first year of his second term, establishing several ambitious goals for America's future including the controversial issue of Social Security reform.

Social Security has served as a lifeline for U.S. citizens for the past seventy years, providing the opportunity for workers to 'pay-as-they-go' into a government program which pays out benefits upon retirement. Under the current system, 12.4 percent of wages earned (up to $90,000) are included in a payroll tax with both employee and employer contributing equal amounts. (1) This system is currently under attack by President Bush's proposed reform. In his State of the Union address, Bush declared:

   Thirteen years from now, in 2018, Social Security will be paying out
   more than it takes in. And every year afterward will bring a new
   shortfall, bigger than the year before. For example, in the year
   2027, the government will somehow have to come up with an extra
   $200 billion to keep the system afloat--and by 2033, the annual
   shortfall would be more than $300 billion. By the year 2042, the
   entire system would be exhausted and bankrupt. (2)

Bush's proposal calls for the establishment of voluntary personal retirement accounts, or the privatization of Social Security. Under this plan, an employee would be eligible to take a portion of his/her payroll tax contribution (up to four percent) and place it directly into a personal account, thus controlling how the money is invested within several specified stocks. The remaining amount of the payroll tax (2.2 percent) would be used to pay benefits to current beneficiaries or be added to the Social Security trust fund. (3)

There are several criticisms concerning the ability to predict the fallout of Social Security as well as the effectiveness of the president's proposed reform. The current condition of the Social Security program is in no real crisis. That is not to say the program will not need to undergo some reform in the future. The Congressional Budget Office (CBO) estimates that the trust fund will be able to pay out full benefits until 2052, and even then the program will not be bankrupt. The trust fund will continue to collect payroll taxes and be able to pay approximately eighty percent of benefits. (4) Bush's proposal, however, threatens to deplete the existing trust fund surplus thus making it impossible to continue to pay out full benefits through 2052. Jason Furman of the Center on Budget and Policy Priorities contends that if the Bush proposal was enacted, "starting next year the government would need to use interest the trust fund earns on its bonds to pay Social Security benefits. In addition, the trust fund would have to start redeeming its bonds in 2014, rather than 2028 as under current law." (5)

Another criticism of President Bush's reform plan is that individual accounts are too risky. Based on the instability of the market in recent years, it is clear that investments in these accounts come with no guarantee of success. Congressman Dennis Kucinich (DOH) understands that risk by stating:

   Stock market investment is inherently risky. Stocks go up, and they
   go down. For every winner there must be a loser. Since Social
   Security is the only guaranteed income in case of old age or
   disability, putting Social Security into the stock market would be
   like betting the rent money. (6)

The idea of Social Security privatization promoted by the Bush administration seeks to move Americans away from their dependence on government, thus providing greater power and ownership to the individual. This ultimately requires a shift of risk away from the government and onto the American worker, resulting in an "individual insecurity program." (7) It is unreasonable to expect that all American workers will be competent to manage their own accounts.

Several other risks are involved when suggesting a move toward privatization of Social Security. According to The Century Foundation (TCF), under the current Social Security program nearly forty-five million people collect payments; one-third of these individuals (approximately seventeen million) are not retirees. Five million of these beneficiaries are spouses and children of retired and disabled workers; seven million are spouses or dependents of deceased workers, and the other five million are disabled workers. TCF maintains that by privatizing Social Security, money traditionally earmarked to finance the current insurance program would instead be placed into investment accounts for each worker. The fundamental argument for opponents of privatization thus becomes the fact that:

   the payroll taxes carved out to pay for personal accounts are
   resources that are needed to support today's payments to recipients
   of Social Security's survivors and disability insurance as well as
   retirement benefits. Simple arithmetic suggests that every dollar
   shifted from Social Security programs to personal accounts is a
   dollar less to provide guaranteed income to the 37 percent of
   beneficiaries who are not retired workers. (8)