At the Republican Convention this summer, President Bush said, “We must strengthen Social Security by allowing younger workers to save some of their taxes in a personal account.”
Social Security does not need strengthening — it needs protecting. Without any changes, the Social Security trust fund will be able to pay full benefits for the next 40 years. With relatively minor adjustments, it can continue indefinitely. There are few government programs — or corporations, for that matter — that can be as confident. But Social Security does need protecting from Wall Street vultures and their White House and congressional agents.
Bush’s plan will, in fact, weaken Social Security. It will endanger benefits for current recipients, as well as for younger workers and those just coming into the workforce. Bush’s broader agenda is to divide younger and older workers, undermining the growing movement around working family issues.
Bush has given no details, but his plan will involve allowing younger workers to divert a portion of their payroll taxes into individual investment accounts they will “own.” This will be a bonanza for the investment firms administering the program — a good deal for them, but a bad deal for a young worker, because the scheme transfers even more wealth from the working class to the owning class. Here’s how:
Most stock is owned by the wealthiest families. Under the Bush plan, payroll taxes from millions of workers will be invested in the stock market. The money will go to buy stock from rich people who now own it. With increased demand for the stock, the price will go up, helping existing stockholders receive an extra profit when they sell their shares. The worker-investors who buy the stock will be paying inflated prices — more than the stock is worth.
Meanwhile, the big Wall Street investment banks will be managing the millions of individual workers’ accounts. Every time a share of stock is bought or sold, these fund managers will skim a percentage off the top. Every year, a small management fee will be charged to each account. Multiply that by billions of transactions in tens of millions of accounts, and it adds up to a very nice piece of change for Wall Street.
The advocates of privatization claim that over time there will be far greater returns from personal investment accounts than from Social Security. But economist Dean Baker of the Center for Economic and Policy Research debunked this idea three years ago. In testimony to the president’s commission on Social Security, Baker showed that, based on projections from the Social Security trustees’ own report, inflation-adjusted stock returns would be only half the 7 percent figure used by privatization advocates. After deducting management fees, the return on individual accounts would be lower than the 3 percent real return that Social Security is projected to receive from government bonds.
But the insidious nature of Bush’s plan cannot be measured simply in dollars. For 70 years, Social Security has been the embodiment of working-class solidarity. It is a promise that collectively, we will provide at least a subsistence living standard to those who are disabled, elderly or survivors of the premature death of a family breadwinner. Personal investment accounts are designed to undermine the political support for this solidarity. Workers will be encouraged to follow the stock market, and place higher priority on growing corporate profits than on protecting wages and benefits. Working class solidarity will be replaced with the dog-eat-dog, I-win-you-lose mentality of the stock market — and there will be far more losers than winners.
This doesn’t have to happen. AFL-CIO President John Sweeney, in a post-election letter, promised, “We’ll take the commitment, heart and solidarity of construction workers, teachers, janitors, engineers, firefighters, nurses and others phone-banking and walking neighborhoods together — and we’ll turn them into success on the issues that shape working families’ lives,” issues that include the need to “strengthen retirement security instead of privatizing Social Security.” This growing commitment can be the heart of a movement that can not only preserve retirement security, but win universal health care as well.
The author can be reached at economics@cpusa.org.
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