Bush Selling S.S. Same as Iraq War

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If you felt the premises for, and the trumped up fears to support, Bush's invasion of Iraq were regrettable, be advised the very same huckster salesmanship is being applied to privatizing Social Security. Yesterday, President Bush completed his two day staged, no contest, no debate, summit for American economic policy. Using the exact same tactics to sell the invasion of Iraq to the American people, he made his pitch for privatizing Social Security. The tactics were clear and simple. Start with false premises and statements, add a huge layer of fear, and then push the sale for the transfer of tax dollars into the deep pockets of his corporate buddies who supported his election.

Let me say up front, this is not a simple issue, nor one that can be understood in a few sentences. I hope you will trust me when I say that you will have a much clearer picture of what is taking place with the Social Security issue by following this article to its end.

The False Premises :

The anatomy of the summit looked like this. Bush got roundtable agreement that Social Security is broke, and threatens the derailing of America's economic future. The premise of the C-Span and MSNBC aired summit was that of a debate and roundtable discussion by objective authorities on the subject. First of all, there were no dissenting opinions. Second, the authorities like a Chase Manhattan representative and supply side economist from the Reagan era and school of Milton Friedman were all predisposed favorably to the privatizing of Social Security. So the premise of an objective roundtable debate and discussion was a sham. In fact, the only debate and dissenting opinions came in another conference aired by C-Span by a number of consumer advocacy groups opposed to privatizing Social Security who supported other kinds of reforms that would save it, instead of convert it.

The second false premise was that Social Security is broke and threatens our economy. This, it turns out, is a complete fabrication, like the yellow cake, mobile biological weapons labs and other weapons of mass destruction in Iraq. All false! The Social Security system is currently quite healthy. In fact, according to its Trustees who manage it, the Social Security program is today taking in more revenues from workers than it is paying out and will continue its many years of producing surplus revenues. The purpose of the surpluses is to cover those future periods when the system is paying out more than it is taking in. Congress, years ago, increased FICA deductions for just that purpose.

The third false premise is that radical changes must be made today to save the system. It is true that if no changes are made, many decades from now, around 2070, Social Security will no longer be economically viable. But that is almost 7 decades from now. Bush's summiteers submissively acceded to Bush's "fear" that if we don't do something major now to fix the problem, all Americans face economic collapse.

This directly correlates with Bush's intimations that Saddam could, and likely would, attack us in the near the future through terrorist agents. The fact is, because the trouble is so far down the road, only small and modest adjustments need to be made today to resolve those issues 7 decades from now. In very much the same way as if you increased your savings 2% today over the next 65 years, you would reap a large benefit through compounding interest decades from now, Social Security requires only small modest changes today to remain viable well into the 22nd century.

The fourth false premise is huge. The summit continually referred to the Social Security system as some kind of failed retirement system needing overhaul. This is entirely false. The fact is, if you look at your pay stub for your SS deductions, you find them under FICA deductions. FICA stands for Federal Insurance Contributions Act, a law which established Social Security in 1935. Note the word insurance. Social Security is NOT a retirement plan. It is in fact, an insurance program.

All workers pay premiums into the federal treasury based on a percentage of their income up to $80,000 per year. If you should die before retirement, and have children of school age, your spouse will receive a benefit to cover your lost income until your children are old enough to get jobs. If you become disabled and cannot work, Social Security renders a benefit to you to insure against your having to move into a cardboard box in an alley somewhere to die from your disability. If you reach retirement age, Social Security pays you a benefit to compensate you for your drop in earnings. If you die before retirement age, your premiums are used to pay for others disabled incomes or post retirement drop in earnings.

So, in Bush's Summit, they reiterated the lie that Social Security is a retirement plan that can be replaced by private retirement savings accounts (PSA's) which will generate more benefits. This was a complete fallacy. President Bush is proposing converting part of the Social Security insurance program into a privatized retirement plan. What are the consequences? First, let us say at 20 you begin your career. You pay into the Social Security Insurance program for 11 years while getting married and having a child. Then you up and die. Just like a life insurance policy, the Social Security Insurance program will pay a benefit to your spouse to help raise your child until the age of 18. Once your child reaches 18, the plan stops paying the benefit.

Under Bush's privatizing plan, there is no insurance component. Under his plan, if you pay in his proposed maximum of 2%, in other words 1/3 of the 6.2% of payroll deduction for FICA now taken, into a private savings account for 11 years and then die, your spouse would receive the total of your private savings account deductions minus any losses the markets incurred during those 11 years, or plus any earnings the markets generated for those savings. Let's say you made $50 thousand a year. 2% of $50 K is $1 thousand dollars. Multiply that times 11 years and the total of your savings was $11,000. Now assume the markets earned 4.5 percent for your savings. That brings the total to $11,495. That is all that your spouse and child will receive regardless what happens to them.

On the other hand, given this same scenario, what happens if your wife becomes disabled 2 years after you die and your child is 4 years old? The private savings account does not pay your survivors one extra cent. However, the Social Security Insurance program will continue to pay a benefit to your wife as long as she is disabled, and continue to pay a benefit for your child until they are 18 and able to get a job of their own. The Social Security Insurance program insures your family against poverty in the event something happens to your ability to work.

The private savings account does not insure your family in any way against poverty. It is available, and when it is used up, you are poor or bankrupt The Social Security Insurance plan is guaranteed. The private savings account (PSA) is not guaranteed. If during those 11 years, the markets incurred a net loss, your family would not get back even the full amount of what you paid in. Part of your money will go to hedge investors who bet the markets would go down.

Put simply, Social Security is a guaranteed insurance program designed to prevent adversity and retiring from the work force from forcing hard working Americans into poverty and destitution. It is designed to keep them from defaulting on the mortgage payments and having to move into cardboard boxes in the back alley. It is designed to prevent children from falling through the cracks as a result of the death or disability of their wage earning parent.

Bush's plan is designed to replace the Social Security Insurance system with a private investment plan which while reserving payroll deductions only for your use, absolutely negates the concept of insurance in which all pay premiums in, and those who experience loss receive benefits from those premiums. Social Security was never designed as, nor does it currently operate as, a retirement program or pension plan. It was, and is, the greatest society on earth's insurance program insuring that its citizens who work, and their dependents, are not rejected from that great society's homes and front streets to alleyways and indigent death houses or reform schools and orphanages, due to misfortune.

Fear Factor

Bush and his summiteers then came to their closing sales pitch with what sounded like a reasonable solution. Let Americans own part of their Social Security insurance premiums in the form of retirement investment plans. However, in reality, it amounts to transferring Social Security tax dollars into the profit statements of the many corporations who support Bush's pro-business agenda. Bush has some huge political debts to pay to his party, and their supporters, for his reelection. Bush spent more to get reelected than any other President in history. The Banking industry, Insurance companies, Investment broker and management corporations, and a host of venture capital companies stand to gain directly from the privatizing of up to 1/3 of the Social Security revenues.

What is devastating about Bush's 'economic summit' is the all or none component of privatizing Social Security. The Congressional Budget Office (CBO), a non-partisan organization whose job it is to crunch numbers for various policy proposals, estimates that Bush's plan to privatize 1/3 of the Social Security payroll deductions will pull 2.2 Trillion Dollars from the Social Security Insurance program revenues over the next 10 years. Over the next 10 years, Social Security, if left alone, will continue to generate revenues in excess of payments.

With Bush's plan, the Social Security Insurance plan will start spending more than it is taking in almost immediately. This means our federal budget deficits will increase almost immediately. The CBO currently estimates that the Social Security Insurance program will continue to produce surplus revenues until approximately the year 2016 if left alone. At that time, those surpluses we have been building up will be used to cover the difference between more payments and less revenue until between 2055 and 2070. The fact is there is no crisis in the Social Security Insurance program for at least another 46 years.

Yet, in President Bush's own words according to a Washington Post article:

"One of my charges," Bush said in a 39-minute speech at the Ronald Reagan Building and International Trade Center, "is to explain to Congress as clearly as I can: 'The crisis is now. You may not feel it, your constituents may not be overwhelming you with letters demanding a fix now, but the crisis is now."

This is where Bush is using the Iraq War fear tactic. Just as he hyped the threat of Saddam Hussein to justify invading Iraq, he is now hyping the Social Security situation as a crisis which is imminent. Just as with Iraq, President Bush knows that the longer the debate over privatizing Social Security, the less likely privatizing will occur, because, the more Americans learn about the situation factually, the less likely they will be to convert their insurance program into a boondoggle for Wall Street Brokers and investment managers. It was no accident that Chase Manhattan banking and investment services were present at the summit table.

Real Options

Of course, the President and his summiteers are right and truthful about one thing. If no modifications are made to the program over the next few decades, the program will be in trouble and likely, given other economic circumstances, have to be cancelled or severely reduced in its insurance capacity. But, there are a host of alternatives to shore up the Social Security Insurance program for the distant future.

One is to raise or eliminate the ceiling caps. A ceiling cap is a provision in the law that says that government will deduct 6.2% of your paycheck for FICA only on your annual earnings up to $80,000. If you make $100,000 per year, the last $20,000 you make will not have FICA deductions applied to it. So, when President Bush says his opponents want to raise taxes to save Social Security, he is talking about his opponents wanting to lift the ceiling cap from $80,000 to some higher amount. If the person making $100,000 per year had deductions taken from the entire amount of his salary instead of just the first $80,000, that person would be paying in an extra $1,240 for that year. Multiply that increased revenue by the number of folks making more than $80,000 per year, and you can clearly see how this revenue would extend the viability of the Social Security Insurance program well into the 22nd century.

Some reformers would like to see all caps lifted. That is to say, they would like to see Bill Gates pay 6.2% FICA premiums on his whole annual gadzillion dollar income the same way a Wendy's manager or Home Depot clerk pays 6.2% on all of their annual income. This of course would eliminate any and all problems facing Social Security funding for as far as the eye can see. But, the Bush camp wants to argue that that extra income going into Social Security would not go into the bond, stock, and treasury markets, thus reducing the total amount of money available for corporations and entrepreneurs to borrow in order to start up or grow their businesses. What it really means is only that the cost of borrowing will go up slightly which is what happens when the supply of money is reduced while demand for borrowing stays the same or increases.

Another plan is means testing the payment of benefits. That is to say, change the law so that if Bill Gates of Microsoft retired today with a billion dollars in his portfolio, he would not receive any Social Security Benefits. In other words, for those who do not suffer drops in income when they retire threatening hardship, the Social Security insurance system would not pay benefits to them or Bill Gates. This is entirely in keeping with the fundamental principles of insurance. Most of us pay homeowners insurance premiums. If we do not suffer a loss to our home or property, the insurance company keeps your premiums to pay for losses that other subscribers incur. They don't give your premiums back to you for being fortunate.

Now the Media is going to play this as a Republican/Democrat issue, a conservative/liberal issue, primarily because the most vocal parties debating this issue with access to the media, are the Republican and Democratic spokespersons. But, don't be fooled. This is not a conservative vs. liberal issue. This issue is about protecting the Federal Insurance Contributions Act law, which provides our entire society and all its citizens with an insurance policy against unanticipated misfortune.

Conservatives love insurance companies. Liberals cannot live without insurance policies. The Social Security program is an insurance policy between the government and its citizens. If the President is successful in privatizing Social Security, he will effectively end it. The reason is that he has no plan to come up with the 2.2 trillion dollar hole that the loss of 1/3 of its revenues will create in the program.

Young people are being conditioned to believe Social Security will not be there when they retire. This is false. It can and will be there with means testing the payment of benefits, meaning paying only to those whose work lives failed to secure a dignified retirement, or to dependents who lost their bread winner, and by increasing or eliminating the ceiling caps on the amount of income from which FICA premiums are withheld.

The fixes are easy, and affordable. The fixes will not cost young people one extra dime to save it for their protection. The privatizing option will literally leave millions upon millions of Americans without any security against the misfortunes that Social Security now insures against. It is important to most Americans that they not be duped into dumping the Social Security program in the name of saving it. Bush fooled us once on Iraq, shame on him. If he fools us twice on Social Security, shame on us.

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This page contains a single entry by David R. Remer published on December 17, 2004 12:07 PM.

The Unseen Casualties was the previous entry in this blog.

Bush Has a Brooklyn Bridge to Sell is the next entry in this blog.

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