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Social Security Will Be Destroyed Under the Guise of 'Fixing' It

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January 12, 2005

William Heyck and Michael Sherry, professors of history, wrote this piece, which originally appeared in the Chicago Tribune, Dec. 9, 2004

Social Security has served the nation well for 70 years and will continue to do so unless ideologues ruin it in the name of "fixing" it. Not only does Social Security not need the radical changes proposed by the Bush administration, those "reforms" will destroy the principles upon which this admirable system of social insurance was founded.

Social Security was established in 1935 above all to prevent the elderly from falling into dire poverty. Private schemes for supporting the retired had failed badly--corporate pension plans went bankrupt, stock market portfolios melted away. Hence, the nation already has had experience with "privatized" retirement, an experience that ended disastrously with the onset of the Great Depression.

The underlying principles of Social Security are a kind of social contract that is both intergenerational and intragenerational. That is, those who are working pay the benefits of those who have retired; and those who have never done paid work (widowed homemakers and dependent children, for instance) receive benefits from those who have worked or still do. Benefits vary according to salary- based contributions, but they are nevertheless progressive: Those who have earned the lowest wages enjoy a proportionally higher benefit. These noble principles assure that everyone who pays Social Security taxes helps care for everyone else, in return for the younger generations' help when we can no longer work.

Not only does the Social Security system operate efficiently and without corruption, it is essential to the standard of living of millions of elderly Americans. According to the Century Foundation, a leading research institute, it provides more than half of the income for more than 60 percent of families headed by someone 65 or older; and some 12 million households get 90 percent or more of their total incomes from Social Security.

Those who wish to allow workers under 55 to set up private investment accounts with at least part of their Social Security taxes argue that the system is in crisis and must be reformed. They claim the coming retirement of the Baby Boomers will bankrupt the Social Security Trust Fund, which holds the premiums we pay each month. They assert that partial privatization is the way to save the Trust Fund because the benefits eventually paid to those with private investment accounts can and will be reduced. But these claims are false on two grounds.

First, the system is not in financial crisis. Economists and actuarial accountants have studied the problem every which way from Sunday, and the most reasonable estimates conclude that the Trust Fund, which has a huge surplus at present, will be able to pay benefits at the currently enacted rates (which increase with inflation of wages) through 2042. Minor adjustments to such factors as the age of retirement, the level of benefits, extending the payroll tax to those not now included or raising the ceiling on taxable income (or some combination) would secure the Trust Fund through 2075.

Second, it is obvious that allowing millions of workers to divert all or part of their Social Security taxes from the general Trust Fund into personal accounts would cause a massive deficit in the Trust Fund and actually generate the crisis that is falsely predicted. Even the White House and its conservative allies in Congress admit that partial privatization of Social Security would cause a huge "transitional" problem--the gap between Social Security intake and outflow until the reduced benefits under the new system would take effect. President Bush has not said how he would pay for that gap, but an increasing number of members of Congress say it would have to be paid for by massive government borrowing. Experts estimate that such borrowing would amount to about $2 trillion or more, on top of the total national debt of about $7.5 trillion. Given the current shakiness of the dollar, those "transitional" costs would be dangerous to the whole economy.

Yes, Social Security will face a shortfall eventually. This is simply the nature of insurance schemes, which in turn make adjustments.

When hurricanes overtax homeowners' insurance, rates and deductibles go up and future payments go down. When private retirement pensions are inadequately funded, government agencies force companies to increase contributions. In other words, we adjust to changing resources and needs without destroying the underlying principles. We do this all the time in national life. We don't shut down the Defense Department or move its funding to private sources when expenditures soar and national deficits rise. When the highway trust fund falls short, Congress renews appropriations for it. We make reasonable adjustments to keep essential entities going. The entire federal government continues to operate despite enormous shortfalls and, in fact, Social Security already has made many adjustments to adapt to the nation's changing demographics and economy.

More important, allowing the establishment of personal accounts with Social Security premiums would violate the intergenerational and intragenerational social contract on which Social Security was founded. This social contract stands for mutual support, while personal accounts represent a completely different idea: self- interest. The main argument for personal accounts is that smart investors could earn more for themselves than the current Social Security plan would yield. Apart from the facts that investment in the stock market is always risky and that workers can set up private investment accounts with their own money now, the personal account proposal for diverting Social Security taxes would reduce benefit payments for the great majority. Is that what Americans really want to do? In an already atomized society, do we want to further sever our bonds with each other?

Topics: Opinion