Is privatization for Social Security the answer?

Last of three parts

The Democrat’s argument is that the payroll taxes have gone from 2 percent in 1935 to nearly 13 percent in 2005 and the increases should not be construed as mechanism to hurt the American worker. Rather, the increases for payroll taxes will bring more stabilization as the unfunded liability is reduced as time goes on.

The Republicans, on the other hand, led by President George W. Bush, do not want to increase any taxes for Americans (a Republican tenet) and would like to borrow one to two trillion dollars to implement the overhaul and “privatize” the Social Security system. The borrowing of this money will add to the crippling national debt, which is now over a staggering $7 trillion as of January 2005. Economists have indicated that a high national debt will have a very strong and negative impact on the amount of inflation generated now and in the future for the American economy. Inflation will, of course, mean higher prices for everything.

President’s Bush’s argument for the major restructuring of Social Security and the borrowing of trillions of dollars to make it happen is that it is necessary in order to stabilize Social Security and ward off the prospect of the system going bankrupt in 2037. The consequence and downside of borrowing appears to be more of a fiscal burden on the national debt than the projected saving of the system by 2037.

House Ways and Means Committee chair Bill Thomas (R-CA) pronounced the Bush Social Security plan as a “dead horse” in a Washington Post article in January 2005. It appears that there are other Republicans in both the House and Senate with similar sentiments.

An article in the Washington Post in January 2005 discussed Bush’s plan to overhaul Social Security. The article stated that the proposal put forth by Bush would cut benefits by abandoning “the traditional wage index system” for calculating benefits. Under “wage indexing”—the same system that determines how much money beneficiaries pay into Social Security—benefit levels are determined according to the earning power of the American workforce, which steadily rises over time. Bush wants to shift that calculation to an “unstable price index” system linking benefits to the fluctuating, government controlled rate of inflation, resulting in reduced benefits for retirees. Under the Bush plan for Social Security, workers who retire in 2075 would receive monthly Social Security benefits 46 percent lower than under the current structure.

A Wall Street Journal article in early February 2005 stripped away the spin on the Social Security system issue and provided an answer to the question: “What would private accounts do to stabilize Social Security’s finances?” The answer was: “In the short run, they would cause a problem. Social Security depends on taxes paid by today’s workers to pay today’s retirees and those on disability. If those taxes are diverted to “private accounts,” then the government has to find another way to cover those retiree’s benefits. Moreover, “over the long run, private accounts are a wash, at best, for the system. Diverting payroll taxes to private accounts would reduce the flow of tax money into the system in exchange for reducing government benefits when workers with private accounts retire.”

In an interview with Fox News on Feb. 5, 2005, Vice President Dick Cheney admitted that the Bush administration’s Social Security privatization scheme would cost trillions of dollars that would have to be borrowed from foreign nations, e.g., Saudi Arabia. He told the Fox moderator that “the government would borrow initially $758 million and then trillions more after that.”

There have been approximately 10 presidents (five Democrats and five Republicans) since Franklin Delano Roosevelt signed the Social Security Act in 1935. Every U.S. president signed into legislation necessary changes for Social Security to be productive and effective. Not one of the U.S. presidents prior to George W. Bush advocated overhauling Social Security and borrowing trillions of dollars to privatize it. If privatization is a concept that will benefit the American people, then why didn’t the former presidents over the past 70 years initiate any major structural changes to the Social Security system?

And the key question that must be posed by the American people is: “Will the overhauling of Social Security create more damage or be more beneficial for people retiring in the distant future and/or for the American economy and national debt? The answers to this question will be the answer to the question: Is privatization for Social Security the answer?

President Bush is currently making the rounds to various states to promote “privatization” as the solution to the Social Security problem. And he refuses to talk about any of the serious financial consequences that will result in the restructuring and privatization of a 70-year-old Social Security system he considers antiquated. Perhaps the reason that so many Americans are skeptical of his plan stems from the poignant fact he does not want to address the “truth” of the matter.

Dr. Jesus D. Camacho
Delano, California