Crisis? Management: Looking at the Debate on Social Security

President George W. Bush has been promoting his Social Security reforms lately, most recently at a town-hall style event in Washington D.C. on January 11. 2005.

Revamping Social Security is part of the President’s larger plan to create what he calls "an ownership society" where public social programs are transformed to individual, market-based ones. Democrats disagree with this philosophy, and when it comes to Social Security policy, they believe in maintaining a secure, public retirement system - a common contract among Americans that requires all to contribute and allows all to benefit.

It will take a fair amount of campaigning for Bush to convince the American public that his proposal to rework Social Security will result in a more secure retirement for future generations. Historically, Social Security has been enormously popular among voters, regardless of their party affiliation, and the idea of changing it worries a very powerful voting block: seniors.

Retirees’ most powerful lobbying group, AARP, is firmly against Bush’s plan to restructure the Social Security system to include private savings plans. AARP argues that Bush’s reforms would be expensive, risky, and would eventually result in higher taxes and/or a cut in benefits.

So if America’s seniors are wary of Bush’s Social Security proposal, who is the administration trying to win over? Probably America’s younger workers, who are convinced that the Social Security system will be completely bankrupt by the time they retire.

Talking to younger workers

Many a 25-year-old worker believes that she is dumping a substantial chunk of her hard-earned paycheck into a program that will go broke before she can benefit from it. This younger worker is likely to support the idea of a private savings account that she can look after and even pass on to children or other relatives when she dies (a feature that social security does not offer).

This solid reasoning is based on the assumption that Social Security will expire before younger workers can collect benefits, a supposition that is not so solid.

How are we supposed to decide how we feel about Social Security reforms when no one can agree on the current condition of the program?

In his January 11th speech, Bush claimed that his critics don’t see Social Security as a problem, and indeed recent critiques of Bush’s plan have a "it’s not as bad as all that" feel to them. But upon closer examination, Democrats’ analyses clearly identify the major weaknesses of Social Security, and like Bush, they advocate that the program be repaired sooner rather than later.

There are major differences in the way that the parties are looking at the future of Social Security as well as major distinctions in their solutions. So what are Bush and his critics saying about the longevity of Social Security? And how do their solutions compare?

Looking at the problem - the current state of Social Security

In his January 11th speech, Bush clearly explained to the American public that Social Security is in deep trouble.

Bush said that as early as 2018, the program will pay out more than it takes in. This is true, but what Bush didn’t mention is that Social Security has a substantial Trust Fund in place -- the program has been collecting more than it’s been paying out since 1983. This extra money has been invested in U.S. Treasury securities and is accumulating interest.

Nevertheless, this trust fund will eventually run out, a process that is accelerated by baby boomers retiring and life expectancies lengthening.

If we did absolutely nothing with Social Security, the program’s trustees claim that the Trust Fund would run out in 2042. However, the government would still be collecting enough taxes to pay out benefits -- some say even greater benefits than retirees are getting now. Bush’s critics claim that this scenario is not deserving of the term "crisis," a word that they say the administration is using to get pubic attention, encourage fear, and win support.

But those opposed to Bush’s plan are not suggesting that those in power do nothing - they simply have a different set of solutions.

Solving Social Security - Comparing Bush’s plan with his critics’

President Bush would like to allow workers to divert about two-thirds of their Social Security tax dollars into private accounts. He believes that the public system is failing and that private accounts will provide workers with more stability, more money, and a sense of ownership.

The details of this plan have not yet been released, but are likely to appear in late February, after he has submitted his 2006 budget proposal. Opponents say that this timing is strategic since Bush’s Social Security reforms could cost as much as $2 trillion (which may have to be borrowed).

Members of both parties are criticizing the cost of Bush’s plan, which could drive the U.S. into deeper debt. And Democrats question the notion that his plan would provide greater stability; they say that subjecting Social Security to private market forces would make it less stable. Many critics point out that retirement income has three legs: Social Security, pensions, and private savings. The only one of the three that is not subject to the ups and downs of the market is Social Security. By turning Social Security over to Wall Street, they say, retirement becomes less secure.

Bush’s critics also doubt that private retirement accounts would yield more money than the traditional Social Security program. Since it would be very expensive for the government to process the private accounts, and because there would be a fee for each transaction within them, retirees may end up collecting fewer benefits.

Other solutions

One of Bush’s challengers, Gene Sperling, a Senior Fellow at the Center for American Progress and the former National Economic Council Director under President Clinton, suggests that a more responsible way to reform Social Security would be to create a 3 percent tax on all income over $200,000. Sperling claims that this would affect only 1.5 to 2 percent of Americans and would help provide future benefits for everyone.

Republican Senator Lindsay Graham of South Carolina has also proposed raising taxes for high earners, an idea that AARP supports. Currently, all income above $80,400 is free from Social Security tax. Raising or removing this cap would provide the Social Security program with more revenue.

Where they agree and where they don’t

Both parties agree that Americans need to save more for retirement (Americans save much less money than most of the industrialized world). But Bush’s critics claim that private savings accounts won’t necessarily encourage Americans to save. To encourage a culture of saving, critics say, it would be more effective to institute a Universal 401(k) plan that helps low and middle-income workers by matching their saved dollars.

The parties also agree that something needs to be done about Social Security, and the sooner, the better. But Democrats argue that Bush’s private savings accounts do nothing to keep Social Security from going into the red. Instead, they say, the transition to private accounts would create deeper debt - a statement confirmed by the Congressional Budget Office. Democrats claim that Bush’s plan keeps Social Security afloat only because it drastically reduces benefits in the future.

What do you think?

WomenMatter is a place to discuss the issues with other women. We don’t want to wedge women apart, but rather bring them together to dialogue. To log onto one of our online forums, click here.

WomenMatter encourages women to educate themselves on the issues and then approach their representatives with ideas.

Even though the election is over, your voice is vital. Make sure our leaders know what’s important to you. To contact your representatives, click here.

WomenMatter is dedicated to empowering women to participate in the political process. To do this we have invested in the most in-depth NONPARTISAN information, because we trust each woman to make up her own mind.

• We track nine issues every week and update this website several times a week.
• We launch after school GirlsMatter Clubs in middle and high schools to grow the next generation of politically aware women through a full curriculum and startup kit on girlsmatter.com.
• We do continuous research to make sure that we are meeting the needs of women across the country of all ages, races, incomes, preferences, and religions.
• We provide partnerships with nonpartisan organizations that provide services to women and advocate for them.

Thanks for taking the time to read this article. You obviously share our belief that women DO matter, so why not take our survey? It is free, fast, and will help us to better represent YOU!

We offer all our services free of charge without memberships or subscriptions. To help us maintain this work - not just in election years but as a continuing part of women’s lives - please make a tax deductible donation, click here.

Article Posted on: 1/15/2005