Social Security has undergone many constructive changes since its inception in 1935, but the changes proposed by President Bush are not desirable or necessary. SS was proposed and enacted during the Depression when four of five seniors were living in poverty.
Senate Democrats voted 60-1 in favor; Republicans, 15-5. Many did not vote, hoping or expecting the hostile Supreme Court to declare SS unconstitutional.
Social Security always has bitterly divided Republicans. When President Eisenhower accepted it in the 1950s, antis found refuge with Barry Goldwater. Republicans suffered losses when they campaigned against it, the last time in 1982. In 1983, President Reagan wisely decided to work with the Democrats to strengthen it. The 1983 amendments largely shaped the system as it exists today. They predicted soundness through most of this century. Recent trustees’ reports estimate SS will not pay out more than it takes in until 2042 or 2071. Predictions are based on more than 12 variables (interest rates, population, longevity, wage scales, etc.). The consensus reports always have greatly understated the system’s health. Yet, President Bush is sure SS soon will go broke.
Since 1983, anti-SS Republicans have relied on the rightist Cato Institute for their ideas. Most recently, Cato published Karl Borden’s “Dismantling the Pyramid: The Why and How of Dismantling Social Security.” Cato advocates private accounts (PA’s) as the first step toward ending SS. They stress to the young that SS will not be there for them when they retire. President Bush’s words almost exactly match Cato’s. Cato has convinced many Republicans that private accounts should appeal to younger workers; if so, they would offset the votes of seniors who have been punishing SS’s enemies at the polls.
President Bush began his anti-SS campaign by proclaiming the trust fund was collapsing and that he had a plan to “save it,” by allowing workers to divert one-third of their SS tax into private accounts. But it is logically impossible to increase the trust fund by cutting its income by 15 to 30 percent, depending upon how many young workers choose that option. The president’s chief of staff, Andrew Card, last month in Bangor twice denied that they would be cutting the fund’s income, but finally admitted the Bush plan was not to shore up the trust fund but to “save retirement.”
Continued Cato and Republican hostility to SS certainly is logical. Its existence as a successful federal program is a threat to their political ideology. Cato claims SS is undesirable because it teaches Americans their government can create programs that benefit them. But there is another reason. In the 1935 debates, Democrats noted a trust fund would weaken the influence that Wall Street financiers enjoyed over federal policies. They reasoned that SS contributions would create a massive government-run trust fund that would buy government bonds, the money from which would finance programs. No longer would insurance, banking and brokerage firms limit policies by charging high interest rates, or refusing to lend at all. These same firms would be selling and managing the president’s favored private accounts. (These bonds pay 3 percent interest into the SS fund; the lockbox idea is ridiculous.)
If, or when, the fund begins to pay out more than it takes in, private accounts will not help. I told Card that SS’s minor problems are solvable in a number of ways, such as raising the wage ceiling to $125,000, and by dedicating to the SS trust fund all revenues raised from an inheritance tax. Such tax would allow heirs of multimillionaires to inherit multimillions. Amazingly, Card said neither he nor the president had heard of either of these ideas, and that inheritance taxes “would hurt the economy.” Other solutions include canceling one- third of the tax cuts that benefit the wealthiest Americans, or combinations of these and other proposals.
However, despite what I have stated above, there are grounds for concern. Free trade is the greatest threat to the solvency of the trust fund, but I have heard no one make this point. Since the 1980s, with President Clinton the worst offender, we have eliminated millions of American jobs with personnel who would have been paying SS taxes. The trend of transferring jobs to Mexico, Pacific rim and elsewhere means we are consuming goods made by workers who contribute nothing to SS. Meanwhile, U.S. wages have fallen, further reducing the amounts Americans pay into the system.
With presidents like Clinton and Bush, we have turned our backs on the tradition of encouraging foreign trade through specific reciprocal agreements which encouraged imports of goods in short supply here while discouraging imports which could damage American employment, wages and small businesses. If reciprocity ever returns, Social Security payments could be included as a factor in deciding whether to negotiate a treaty.
Wall Street and U.S. corporations are investing in these “foreign” companies as part or entire owners. Some escape all taxes by locating “off shore.” All avoid paying the SS tax on employees because their new workers are foreign nationals. This new world situation calls for a new policy concerning contributions to the SS trust fund if that fund begins paying out more than it receives. We should impose a tax on all U.S. income whether derived from foreign or domestic producers. Perhaps 2 percent would be sufficient to stabilize the trust funds and-or maybe even lower the 6.5 percent contributions that loyal U.S. firms pay.
Instead, we hear that private accounts are the only option (along with unnecessary benefit cuts, raising the retirement age, etc). Lack of serious discussion of real potential threats and alternative solutions by the president and his anti-SS supporters convinces me that President Bush does not really believe there is a Social Security crisis that needs to be “fixed” and that he simply has accepted the Cato Institute’s plan to weaken Social Security without losing elections.
It is gratifying to learn that the great majority of Americans, including even a majority of younger people, oppose weakening Social Security by welcoming private accounts. But the president is continuing to press for this unneeded “reform.”
Clyde MacDonald, of Hampden, is a retired former aide to Sens. Edmund Muskie and George Mitchell.
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