2005-03-25 / Columnists

The Progressive

Social Security
By John Paul Culotta


I have a friend who is retired. She was a district manager of a Social Security office and was very proud of her service. She told me the agency was efficient and very little (less than one percent) was spent in administrative costs. For more than seventy years the American people have had a love affair with Social Security. Pundits have expressed the opinion that politicians who want to change Social Security risk their political future. It is the third rail of our system. Many of the present recipients (fifty percent) would be living in poverty if the safety net of Social Security would be abolished. Despite the success of the program and its popularity the Bush administration is attempting to make drastic changes to the program. The administration is using scare tactics and falsehoods to advance its agenda. An organization, America Next, led by ninety-three old Art Linkletter, is ac-cusing the AARP which is critical of the Bush attempt to begin the scuttling of the Social Security program by privatization, of being an organization that promotes gay marriages. Bush has stated that the program will be bankrupt in forty years time. According to government statistics Social Security will be able to pay benefits (albeit not full benefits) for 75 years without any changes In other words a twenty year old entering the labor market today would be 95 years of age before the system would be bankrupt. Without any changes the recipients of future Social Security would be receiving reduced benefits. (I suggest you read Hoax by Nicholas Von Hoffman regarding how the Bush/ Cheney administration uses the sale pitches of snake oil salesmen to further their interests). The projections used regarding Social Security shortfalls do not take in consideration the increase in immigration to our shores. The New York Times in an article dated February 12, 2005 stated that if legal immigration increases by one third there would be a ten percent reduction in the Social Security shortfall. This nation has enormous economic and social issues to address. Our ballooning deficit, the rapidly increasing cost of medical care which threaten to bankrupt Medicaid in the near future, and ensuring public safety need attention. Hal R. Varian, a professor of economics at the University of California, Berkeley wrote in a column in the New York Times February 10, 2005 that median-income individuals “ under the Bush plan would get about 7 percent less” in lifetime social security benefits. The new proposal needs to address the ownership problem divorced people will have in receiving social security benefits. This nation has a high a divorce rate. Currently the divorced spouses can receive social security.

When Franklin Delano Roosevelt initiated the Social Security program it was explained correctly to the American people as an insurance policy. Americans receiving social security would not be getting charity. Social security was a vehicle to ensure the economy would not suffer depression after depression because velocity dollars (dollars that circulate rapidly in the economy) would be circulating. Senior citizens, the widow and her children, the disabled e.g. the blind- the so-called worthy poor would be protected. In addition, all Americans would be ensured a minimal amount of income in their old age regardless of the financial status. It worked miracles for many American families. Seniors were not at the mercy of other family members. Children were not forced with the choice of feeding their children or their aged parents. Seniors could maintain their dignity and independence in their homes or apartments without being a burden to their adult children. It caused a social revolution and changed America. Similar to all insurance policies not all who pay the premium (in this case payroll taxes) receive a benefit. I have paid home insurance premiums for more than twenty-five years without claiming any loss. The Bush administration is saying the citizens of this nation should change the fundamental premise of the insurance policy for old age, survivors and the disabled to an investment policy for the retired. This proposal will leave the disabled vulnerable. Currently 16 percent of social security checks go to Americans who cannot work because they are disabled. The New York Times in an article entitled Bush Plan Poses Tough Safety Net Questions dated January 27, 2005 stated “ Social Security provides more than half the total income for about half of these disabled people and more than 90 percent of the income for about one fifth of them. It would be folly to ignore our obligation of a safety net for a risky proposal to enrich Wall Street brokers. Our commitment to each other entails acknowledgement that an ownership society needs to be based on mutual responsibility that overrides the need for some to enrich themselves. Jew, Christians and followers of Islam are noted for the belief in providing for common needs. A faith based administration should know this. We need not become a kleptocracy.

The Social Security Administration is required by law to put its reserves in U.S. government bonds backed by the full faith and credit of the government. If the social security administration needs to cash in these bonds to pay full benefits to baby boomers causes bankruptcy, it begs the question that no foreign entity or family can feel secure in buying government bonds. Is this a prudent and compassionate mechanism by which to run a government? According to George N. Spitz, a retired auditor of New York City programs, in an article in Newsday January 19, 2005: “President Bush based their gloomy forecasts on an actuarial report predicting significant decline in productivity, steady 5.5 percent unemployment, depression-level economic growth and lower fertility rates. He goes on to write “the most recent trustees report admits that under one group of actuarial inferences the fund would actually accumulate a surplus in the vicinity of $15 trillion by 2042.”

Bush also has remained silent as to the details of his program. This leaves our representative in congress and the public unsure as to what the proposal is. Americans are being asked to exchange a successful social program for a program that will leave many without a safety net. Americans believe in an ownership society but there is no impediment at this to saving and investing. In fact, there are tax advantages to setting aside savings though various deferred sheltered programs.  

Right wing media is attempting to sell the privatization idea for social security by stating some foreign countries for example Chile, Britain and Sweden have already privatized their pension systems and this has been a success. Norma Cohen in the February 2005 AARP Bulletin states Britain “learned the hard way that the costs of administrating private accounts can affect returns and reduce the size of a retirement pot by up to 30 percent” and “unusual for Britain there is now an emerging consensus among labor and business, liberals and conservatives that the government system needs serious reforms.” All now question Lady Thatcher’s legacy regarding privatization. In Chile middle-class workers are finding that their private accounts burdened with hidden fees have soaked up as much as a third of their original investment. On February 12, 2005 the New York Times reported that in Poland an army of sales agents, hired under a new private savings regime in 1999, defrauded the system. In Sweden the private plan has suffered because of the stock market boom and bust cycles.

In an article of February 12,2005 (NY Times) Berit Andnor Sweden’s Minister of Social Affairs was quoted to say “Those who chose to put their money in funds have lost their money in some way.” These statements are not made by the right wing- the same right wing that refuses to follow the example of Sweden and Britain regarding health delivery. This administration does not usually secure the advice of foreign governments regarding matters of such a serious nature. Why are the minions of this administration (including the President himself- using Chile as an example of a successful example) wish to use foreign experiences to influence the debate?

In order to finance Bush’s proposals the federal government will be forced to borrow nearly 5 billion dollars over the next 20 years according to their own estimates. The deficit is now $403 billion. This deficit involves selling government bonds to foreign countries and passing the debt to future generations. The most realistic solution to the social security crisis is to end the cap on wages for social security payroll taxes. At this time, the payroll tax is a regressive tax and needs reform. The definition of “ independent contractor needs to be reformed.

Many corporations and individuals claim independent contractor status for labor that any prudent person would consider to be employment and entail the payment of payroll taxes.       

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