January 6, 2005

Opinion: Social security will be destroyed under the guise of 'fixing' it

By T. William Heyck and Michael Sherry, professors of history

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. Radical “reforms” proposed by the Bush administration would destroy the principles upon which this admirable system was founded.

Above all, Social Security was established 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’s experience with “privatized” retirement 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. Those 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. Thus, 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 Social Security operate efficiently and without corruption, it is essential to the standard of living of millions of elderly Americans. According to the Century Foundation, 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 the system is in crisis and the retirement of the Baby Boomers will bankrupt the Social Security Trust Fund. They argue partial privatization will save the Trust Fund, because benefits eventually paid to those with investment accounts will be reduced.

First, the system is not in financial crisis. The most reasonable of myriad estimates from economists and actuarial accountants conclude the Trust Fund, with a huge surplus at present, will be able to pay benefits at the currently enacted rates through 2042. Minor adjustments would secure the Trust Fund through 2075.

Second, allowing millions of workers to divert all or part of their Social Security taxes from the general Trust Fund would cause a massive deficit in the Trust Fund and generate the crisis falsely predicted. An increasing number of members of Congress say the gap between Social Security intake and outflow —  until the reduced benefits under the new system would take effect — would have to be paid for by massive government borrowing, estimated at about $2 trillion. Those “transitional” costs would be dangerous to the whole economy.

Yes, Social Security will face a shortfall eventually. We adjust to changing resources and needs without destroying underlying principles all the time in national life. 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.

Social Security stands for mutual support, while personal accounts represent a completely different idea: self-interest. “Reformers” argue that smart investors could earn more for themselves than the current Social Security plan would yield. But investment in the stock market is always risky, and workers can set up private investment accounts with their own money now. More important, the personal account proposal for diverting Social Security taxes would reduce benefit payments for the great majority. In an already atomized society, do we Americans really want to further sever our bonds with each other?

This is an excerpt of an essay from the Chicago Tribune, Dec. 9, 2004.