The Bush administration's program for "reform" is a wolf in sheep's clothing

By Don Kuehn

Only a few years ago, President George Bush called Social Security “the single most successful program in government history.” He was right then; he’s dead wrong today in his zeal to privatize and dismantle the program. His claim of a “crisis” is little more than a ruse to cut the benefits workers have earned through their Social Security payroll taxes.

The Social Security Trust Fund does face problems down the road, but experts say—and most Americans believe—that there is no crisis (see sidebar on page 4). According to a poll conducted by Peter D. Hart Research Associates for the AFL-CIO in January, the majority of voters support making modest changes to Social Security to preserve benefits for future retirees. Moreover, when people learn the details Bush is proposing, a majority believe his plan worsens the problem by diverting trillions of dollars from the trust fund and weakening the system.

Social Security is a retirement system workers have paid for through payroll taxes levied on workers and their employers. This year, Social Security will provide monthly benefits to more than 47 million people, including 32.6 million retirees and their dependents, 7.6 million disabled workers and their families, and 6.8 million surviving spouses and children of workers who have died.

The program is important even for the 5 million state and local employees (and for federal government employees hired before Dec. 31, 1983) who do not participate. According to the Social Security Administration, 95 percent of state and local employees who are not covered become covered by Social Security through their spouses’ employment, because they are the dependents of covered workers or because they take a job in the private sector.

Social Security was never intended to be a stand-alone retirement plan. To survive comfortably in retirement, every American should have a combination of government benefits, personal investments and an employer-sponsored pension. But for two-thirds of the elderly, Social Security provides the majority of day-to-day income. And for 20 percent, it is their only source of income.

By setting up private investment accounts as part of Social Security, the president says he wants to create an “ownership society” of people who have a personal stake in their own retirement welfare. But we already have 401(k) and 403(b) plans, IRAs, Roth IRAs and myriad personal investment opportunities. What we don’t have much of anymore are lifetime defined-benefit, monthly pension plans that are relatively risk-free, like the Social Security program the administration seeks to destroy.

“This is the most significant fight of the beginning of the 21st century,” says AFT president Edward J. McElroy. “It is about the future role of government. The clear choice is between a government that stands for individuals, for supporting a program financed by citizens’ own taxes to secure a good retirement, disability protection and survivor protections, or a government that stands aside and shifts the risk of financing retirement to the backs of its citizens.

“The president’s attacks on Social Security, as well as on Medicare, suggest he supports the latter view. The AFT strongly disagrees,” McElroy says, “and we will fight efforts to kill or cripple these essential government programs.”

The Bush Plan

So, what will President Bush’s plan look like? The president has not revealed all of the details of the plan he will try to push through Congress but certain features are known. Based on recommendations made in 2001 by the President’s Commission to Strengthen Social Security, the White House is going with a reform model that would allow workers younger than 55 to divert up to 4 percent of their tax contribution into a private account that would be managed by an investment firm.

Guaranteed Social Security benefits would be cut in steps by an average of 26 percent to 45 percent depending on the participant’s age when he or she entered the program. This is the result of Bush’s real goal to change the formula on which initial benefits are calculated from a “wage-based” to a “price-based” model.

The Center for Economic and Policy  Research estimates that the average retiree who is 20 years old in 2005 would lose a total of $152,000 in benefits under this plan if he or she lives 20 years after retirement.

These private accounts do nothing to solve the long-term financing problems of Social Security. For those problems, the only solution proposed is significant cuts in workers’ future  Social Security benefits.

The president’s claims that privatization would save the Social Security system and also save the federal government are fantasy, according to experts. His statement that the system will experience a shortfall of $11 trillion  turns its back on traditional forecasts that are based on 75-year projections. The real 75-year figure is $3.7 trillion—large, but not so great that it cannot be addressed with modest changes and by rejecting the private-account hysteria.

In a statement released Feb. 2 by the AFT executive council, the union warned of the risk to future generations: “Analyses of privatization proposals show that younger workers will get hit twice: once with a reduction in Social Security benefits and again with the burden they will be forced to carry to pay off the grossly expanding federal debt.”

AFT and the other member unions of the AFL-CIO are putting significant resources into an education campaign. They want to be sure workers get the truth about the Bush plan for Social Security: It undermines retirement security.

$2 Trillion Debt

If income into Social Security is cut, it has to be made up somewhere else. To finance the shortfall created when money is diverted into private accounts, the federal government would have to borrow to meet the promised benefits for those already retired. This is called “transition cost.”

The transition cost is commonly estimated to be $2 trillion over the next decade. But Alan Blinder, a Princeton economics professor and former vice chairman of the Federal Reserve Board, thinks the effects of private accounts will linger for 60 years. He calculates that the most widely discussed reform model would cost $4.5 trillion in the second decade of reform.

How can the government borrow that kind of money? It does so by selling government bonds backed by the “full faith and credit” of the United States—just like the IOUs in the Social Security Trust Fund. Forty percent of these debt obligations are held by foreign investors. If their confidence in the United States’ ability to repay the debt is shaken, there may not be a market for these securities.

So we have a president presiding over the largest deficits in history, and yet he is proposing to lock-in the tax cuts of 2001 and 2003 and make fixes to the alternative minimum tax (a cost of $1.9 trillion over 10 years); he already has run up deficits under current law projected at $2.6 trillion; the price tag for the war in Iraq is yet to be determined; and now comes the Social Security “fix” that could run added red ink of up to $6.5 trillion in the next 20 years.

As details of a potential plan continue to take shape, it seems clear that private accounts are no more than a smokescreen for an even more insidious presidential “reform.” While our attention is focused on defeating private accounts, the change in the method of calculating benefits—from a wage base to an inflation base—will emerge as the Bush solution to the manufactured “crisis” in the system. That change alone will cut the benefits of every potential Social Security beneficiary—that means you.

Make no mistake about it. This is an ideological war against the progressive, humane policies that date back to Franklin Roosevelt’s administration. Whether Social Security is broken or not, the Bush administration intends to “fix” it by gradually dismantling what President Bush himself once called the “single most successful program in government history.” It is a direct attack on young workers and their families.

AFT president McElroy vows to put the union’s weight behind saving the safety net that rests on Social Security. “The AFT will lead the fight to protect and strengthen the Social Security system by assuring rock-solid funding to guarantee workers the benefits they have paid for,” he pledges.