As President Bush travels the country trying to convince Americans that Social Security is in crisis and needs to be reformed, workers of all ages and political stripes are wondering how the president’s proposals will affect their retirement.
They’re right to be concerned.
While Bush talks about “reform,” his real aim is to privatize and ultimately gut Social Security – a system that has provided guaranteed income for senior citizens for 70 years since it was won through workers’ struggles in the 1930s. His Social Security plan would generate a windfall for the financial industry while boosting the national debt and forcing future generations of retirees into poverty.
The Bush Plan
For years, conservatives and sections of the financial industry have dreamed of bringing Social Security money into the private market. After winning reelection, Bush announced that Social Security was facing a crisis and that changes must be made immediately or the system would go bankrupt.
His solution: encourage workers to divert part of their payroll taxes into private accounts to be invested in the stock market. Instead of going back into the larger pot of Social Security money, the accounts would belong to individual workers who would then bear the risk of their investment. Social Security benefits would be cut to cover the costs.
Private Accounts Are No Solution
Bush’s plan would shift many people from the Social Security system to the insecurity of the private market, without solving any of the system’s underlying problems.
While Bush promises workers at his stage-managed town hall meetings that their money will grow in private accounts, it could just as easily shrink. If the market crashes before a worker retires, he or she could be left with little or no pension. Since Social Security benefits would be reduced for every dollar placed in a private account, the market would have to perform well just for workers to break even.
Far from eliminating Social Security’s projected deficit, the accounts will actually cost the government up to $2 trillion over the next two decades as younger workers begin to divert some of their money away from Social Security.
Ultimately, the administration plans to make up the lost revenue by linking benefit increases to prices instead of wages. The move could cut Social Security benefits for younger workers by as much as 40% – even if they don’t choose to invest in private accounts.
Wall Street firms, however, will be reaping plenty of benefits. They stand to make close to $1 trillion in fees from managing the accounts over the next 75 years, according to a study by economists at the University of Chicago.
Defined Benefits vs. Defined Contribution
Bush’s plan is part of a broader drive by employers to make workers bear more of the costs of retirement. During the post-World War II period, labor unions won strong contracts with “defined benefit” pension plans, in which workers were guaranteed a specific monthly payment from their employer after they retired.
But in recent years, as unions grew weaker, large numbers of employers switched to “defined contribution” plans, also known as 401(k) plans. Under a 401(k), the worker and the employer both make monthly contributions to a savings account that is invested in the stock market; when the worker retires, he or she gets only whatever money remains in the account.
It’s this model, where employers pay less but workers have no guaranteed income for retirement, that Bush wants to follow with Social Security.
Saving Social Security
While Social Security faces a long-term fiscal problem as the Baby Boom generation retires, there are many ways to address this without privatization or benefit cuts. Currently, workers only pay Social Security tax on income of up to $90,000 per year. Raising the cap so higher-income workers pay their fair share would cut Social Security’s projected shortfall in half, according to the AARP. Removing the cap would bring in even more revenue.
Rolling back Bush’s tax cuts for the wealthy and withdrawing the troops from Iraq would also bring in money to shore up Social Security and other social programs.
Finally, large corporations should increase the amount they pay in Social Security taxes until the system is solvent. It’s the least they can do for workers who give most of their lives to a company.
We must not only maintain Social Security benefits for tomorrow’s workers, but we must increase them. With healthcare costs soaring, the average Social Security income of about $300 per week is not enough to provide for seniors’ basic needs. A guaranteed check of at least $500 per week adjusted for inflation, along with universal health care, is the only way to ensure retirement security for future generations.