Walter Rhett

The Social Security Smoke Screen

In Business, Living, National Government on January 25, 2011 at 4:37 pm
Zane and Tex Bonnet; Nevada, 1979.

Zane and Tex Bonnet; Nevada, 1979.

The idea of a safety net programs is a strange tale of a long ago American government, now out of fashion. Strong political forces and bad arguments are aligned against the poor. Strong political and private forces are after social security and its enormous pot of public gold.

Bad arguments vilify social security on fiscal and ideological grounds. Calling social security an “unsustainable tsunami” “threatening to bankrupt the nation” on its website, social security is starting “to show its age” a Heritage Foundation paper argues.

Social security is not tattered but a classic: the last great pot of gold in peace time, a prize to be gained without producing anything more than a good public relations campaign and a few changes in congressional votes. The spin wars and projections of the system going bankrupt conveniently conceal the fact that the fund as of September 2010 currently contained $2.6 trillion. That’s right. This “bankrupt” fund contains $2.6 trillion, up from a mere $47 billion in 1986, and is still growing quarterly in net assets.

The fashionable goal this season is to place this treasure trove of public wealth into private hands. Republicans intend to use government’s authority to collect taxes to act as an agent to transfer the taxes into private accounts. Consequentially, private companies will be flush with windfalls and steady streams of capital gratuitously redirected to those who have done nothing to earn the fruits of workers’ labor.

The Republican strategy has three action points, outlined in the national party platform. The first is a commitment that nothing will change for the 51 million people who currently receive social security and disability benefits. The promise neutralizes them politically. Promised no impact on their benefits, many current recipients will sit on the political sidelines as major program changes are made.

The second action point is the Republican mantra, the promise of “no tax increase.” This point stakes out the revenue the system would receive by simply raising the income ceiling limits above $106,800. A Heritage Foundation paper argues via an emotional appeal that raising the income limit to $140,000 would cause families to “suffer.”

The third action point is the heart of the Republican sales pitch. It cleverly eases social security away from being a government run program by making the government’s taxing authority into a transfer agent for “choice.”

But the Republican proposal for “choice” increases government costs. “Choice” creates more layers of expensive bureaucracy to track and manage the accounts invested outside. Of course, the costs of employee education will be picked up by the government under “choice.”

In essence, the government picks up the massive overhead costs of collecting, processing, and managing the administration of the outside funds–leaving private sector accounts with lower overhead and a titanic tsunami of new funds every quarter.

The CBO defines Social Security as “a defined-benefit system, with benefits calculated using a formula based largely on previous qualified earnings. That restriction simplifies administration.” Social security pays for itself; it has a specific tax dedicated to its revenue stream that covers its costs.

According to a detailed CBO analysis, the higher levels of service and different tasks demanded by offering private accounts will increase costs to both the government and the worker. At present, social security accounts have low administrative costs and do not incur any transaction costs. For certain forms of private accounts, the CBO estimates administrative costs could increase ten times the present level. Moreover, for the worker, the administrative and management costs on smaller accounts amount to a retrogressive tax.

The risks assumed by the workers include: long periods of market volatility or stagnation, no guaranteed return, emergency withdrawals that drain the account, exhausting the account funds before death. For example, in the 15 months before October 2008, Americans lost $2 trillion in private retirement savings, the CBO reported.

In assessing any proposal or change, it is important to ask, “who benefits?” If the Republicans get the cuts they have been “fighting for,” the only sure winners will be the private investment and financial companies who will reap a bonanza without the guaranteeing the returns based on contributions.

Senator Bernie Sanders of Vermont is clear about the system’s current stablity and notes this point: “for 75 years has paid every benefit owed to every retiree, widow, orphan and disabled American who was eligible without contributing a nickel to the federal deficit.  With no changes, Social Security will be able to continue that successful track record for the next 27 years. To strengthen the program for the future, . lift the payroll income cap to income of $250,000 and more.  Now millionaires pay only as much as workers making up to $106,800.”

The health care repeal vote demarcates, in some political narratives, a historic watershed of resistance, a rallying cry of legislators rising up to return to founding principles. But the well rehearsed rhetoric of lofty sentiments hides the vote’s true intent: the vote is not a gladiator call for freedom. It’s an attempt to abridge our security because strong political forces have their eyes on another, extremely lucrative prize.


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