Social Security Private Accounts Will Hurt Younger Workers
Bush social security proposal to create private accounts has generated interest
among younger workers. Ironically,
it is the younger workers who will lose the most if this scam becomes law.
Bush Administration is misleading the American people by saying that the Social
Security Trust Account is going broke. What
is not mentioned is that the program was “broke” when it began.
The first recipient retirees had not contributed to the program.
The program did not begin as a high yield account.
Rather, it was agreed that it was in the national interest to provide a
steady income to help lift retired workers out of poverty.
The program began as a sacred pact between the government and its
citizens: Do the right thing by the
current retirees, and the government will make certain that benefits will be
there when it is your turn to retire. Congress
established that the revenue to pay for the program would come from taxes levied
on the current workers. In return,
the government promised to provide a retirement income for the current workers
once they reached retirement age. For most of its 70 years that the social security program has
been in existence, the amount of revenue collected has been calculated to
provide just enough to cover the obligations of the retiree population.
fact, until 1980, the surplus in the Social Security Trust Fund did not exceed
$20 billion. Then, in the
mid-1980s, Congress decided to address the twin facts that retirees were living
longer and the aging baby-boom population would increase the resource demands on
the social security system as they retired.
anticipation of the projected increase in demand on the Social Security Trust
Fund, Congress adopted a new collection policy. It raised the social security tax rate for the express
purpose of building a revenue reserve. By
the year 2000, 85% of the population was still making less than $75,000 per
year. Each dollar earned by these
110 million workers was taxed at the rate of 12.4%.
Self-employed workers pay the entire 12.4%. Those who work for a company pay 6.2% out of their salary,
while the company pays the other 6.2%. By
2001, the government was collecting $140 billion more annually than it was
spending to cover benefits to retirees. At the end of the Bush presidency, there
will be more than a $2 trillion surplus in the Social Security Retirement Trust
Bush recently went to Parkersburg, West Virginia, to dramatize his claim that
the Social Security Trust Fund was not real.
He went to the Bureau of Public Debt to show that the trust fund was only
a bunch of IOUs stacked in cabinets. The
intent of the administration photo op was to add to public concern while
portraying the president as proactively concerned with the issue.
What the administration does not want known is that $700 billion of the
stack of IOUs in the Social Security Trust Fund have been issued during
President Bush’s first five years in office.
Bush is pretending to be concerned about the looming social security deficit,
yet, by 2008; nearly $1 trillion of the $2 trillion cash reserve will have been
squandered during this administration. The
money has been used to hide the long-term budget shortfalls caused by the
administration’s over-generous tax cuts for people making more than $1 million
will younger workers suffer most under the Bush social security modification
plan? The private account proposal
is really about giving the government an excuse to renege on its obligation to
younger workers. If the
administration does not find a way to reduce its obligation to the young
workers, more revenue will have to be generated.
The Bush Administration will turn the implementation of private accounts
for young workers to their advantage by masking their true intentions --
lowering taxes on the Superrich.
Bush plan is a classic case of bait and switch. Let us say that the president got his way and young workers
were allowed to divert 4% of the money currently deducted for social security
directly into a private retirement account.
Even though the amount being contributed to the trust fund from
retirement taxes of younger workers will only decrease from 12.4% to 8.4% (about
33% of the current contribution), the social security benefits delivered to
these young workers once they retire will be cut by much more than 33%.
Do not be surprised if the Republicans ultimately try to cut benefits for
younger workers by 40%, 50%, or even 60%. The
Bush Administration is attempting to scam younger workers into trading the firm
commitment the federal government made to fund social security benefits.
claim that younger workers can make tons of money by simply investing their
meager private account assets in the stock market is unrealistic.
Most workers will have far less than $1,000 to contribute to their
account annually. The current
average annual contribution is about $575.
Only a very aggressive investment strategy would allow the money in most
retirement accounts to overcome a 40% to 60% reduction in social security
benefits much less experience significant gains.
As the people who aggressively invested in companies like Enron and
Worldcom can attest, aggressive investment strategies can result in great
losses. Under such circumstances,
the young workers will face retirement with inadequate social security funds and
nothing in their retirement account.
American families are living paycheck to paycheck. It is easy to fool them into believing that being able to
save a few hundred dollars each year in a private account will provide them with
a secure retirement. They have no
concept about how much money it would require to equal the nest egg social
security is currently providing.
2002, the average monthly social security benefit payment for a retired worker
and spouse was $1,494. If you were
65 years old and planned to live an additional 20 years, you would need about
$350,000 in the bank to withdraw an inflation-adjusted $1,494 per month.
That kind of money is not going to be accumulated by investing $575
annually in a personal retirement account.
Yes, money grows over time, but the buying power of money diminishes.
Your money has to increase each year just to stay even with inflation.
For instant, it took about $3 in 2001 money to buy as much as $1 bought
in 1976 because inflation averaged 4.5% annually between 1976 and 2001.
If inflation averages just 3% annually during the next 50 years, an
18-year-old worker will need to have about $1.5 million in a personal retirement
account by the year 2055 in order to draw a monthly benefit check with the same
buying power of the current retired couple’s $1,494 social security income.
Exactly how much of the social security benefit should a young worker
give up for the slim chance of making a killing with investments in a personal
The Bush Administration is
using half-truths to mislead the public regarding the scope of the social
security crisis. It does this by
sending out minions to argue that increasing payroll taxes would not solve the
problem. The minions piously claim that even raising the income level that the
social security tax is levied on from the current $87,000 to $1 million will not
be enough. What they do not tell
you is that an average of less than 3% of the income of people making over
$1,000,000 is being taxed for the Social Security Trust Fund.
Currently, 100% of the income of people earning less than $87,000 and an
average of 56% of the income of people earning between $87,000 and $1 million is
already being taxed to contribute to the trust fund.
I clearly documented in Conning the Rich: The Great American Fraud, by 2000,
taxes on those making over $1 million annually had dropped an average of more
than 31% during the previous 20 years. Despite
this fact, the Bush Administration has rushed in to give this tiny group of over
privileged Americans more tax breaks while using the Social Security Trust Fund
surplus to hide the impact on government revenue. If, as the administration
claims, everything is on the table, why is the administration only willing to
consider increasing taxes on the people with incomes of $87,000 to $1 million
who have not received tax relief.
recent article in the Baltimore Sun pointed out that the government is
projecting a $4 trillion shortfall in social security collections during the
next 75 years. As daunting as the shortfall seems, if the social security tax
was increased by an additional 1% for everyone and if all income for people
making over $1,000,000 was subject to the social security tax, the problem would
be solved. Raising the amount
collected from worker from 6.2% to 6.7% and having employers match the amount
would generate an additional $36 billion annually. Collecting social security taxes on the 97% of the income
from the people making over $1 million annually will generate an additional $80
billion to $107 billion annually. With
the additional $116 billion to $143 billion annual influx from the above two
sources, the $4 trillion collection shortfall would disappear.
The increased tax burden on the 240,000 people making over $1 million
each year would be far less than the 31% tax cut they had received during the
past two decades.
Bush Administration has no intention of solving the social security shortfall in
such a fashion. Its single-minded
goal is to develop an ever-expanding number of methods to reduce the taxes for
their superrich friends at the expense of the 99.5% of Americans who earn less
than $500,000 annually. If all the
tax cuts they have proposed become permanent, taxes on the top 1/5 of 1% (who
make over $1 million per year) will be 45% less than they were before the late
President Reagan began the trickle-down fraud.
When you consider that most other Americans have seen little or no tax
relief, the actions of the Bush Administration and Congress border on criminal
perfect example of how warped government priorities have become can be found in
the 2006 budget. In the name of
fiscal responsibility, Congress will probably cut about $20 billion from
domestic programs. These cuts will
adversely affect millions of Americans. Yet,
the $20 billion in revenue savings is the approximate amount the government will
lose by repealing the tax on estates of $5 million or more.
Only about 3,500 estates of $5 million or more have any tax liability in
a given year. Still, Congress is
rushing to protect these few deceased Americans while leaving millions of
Americans out in the cold.
Democrats have allowed the Bush Administration to mischaracterize tax reform as
a rich vs. poor issue because the nation is in a state of denial.
It is common practice to consider people earning $50,000 to $100,000 as
middle class. In truth, those
earning about $50,000 are included in the richest quarter of the population.
Those making $75,000 are in the top 15%, and those making $100,000 are in
the top 10%. It has not been in the
best interests of most rich Americans to support the Republican tax cut
movement. By the year 2000, taxes on people making over $1 million had decreased
by 31%. During that time, taxes on
people earning between $50,000 and $500,000 had not decreased. The net effect on income has been dramatic.
Although after-tax income of most rich Americans (those in the $50,000 to
$500,000 group) has only increased by 28%, the after-tax income of the
millionaires increased by 591%.
As was documented in my
previous books, A Broken Covenant: The Rape of the American Middle Class, and
Conning the Rich: The Great American Fraud, the American taxpayers have been
misled by the architects of the Reagan and current Bush doctrine for a quarter
of a century. Between 1976 and
2000, the income share of the wealthiest 1/5 of 1% increased from 3% of the
nation’s total to 13%. Setting
policy to maximize the tax advantages of the 240,000 people making over $1
million annually has given this tiny group of influential people an unfair
advantage over the majority of American taxpayers.
Republicans have lost sight of a significant point of the free enterprise
system. While it is a fact that a
few will do much better economically than the majority of Americans, there is no
reason for the government to add to the advantage of the privileged few by
repeatedly cutting the taxes of millionaires.
Government is most useful when it helps keep the economic playing field
level by compensating for the extreme gains afforded to a few.
At the very least, the government should not keep adding to the spoils of
the richest few at the expense of the majority.
security has always been about the commitment of the government to arrange for
current workers to fund the needs of current retirees.
The social security crisis has been exaggerated because the Bush
Administration is looking for a creative way to back out of its obligation to
future retirees by scaring young workers into agreeing to a program that will
cut their promised benefits. Now is
the time for all workers to stand together against this attack on the social