Privatizing

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Privatizing
Social Security
Fact and Myth
by the King County Democrats Legislative Action
Committee January 2005
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The Social Security Act is a law that takes
care of human needs U.S. President Franklin D.
Roosevelt January 30, 1882 April 12,
1945 Helen Thomas, Post
Intelligencer, 12/16/2004
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• After this presentation you should understand
• What is Social Security?
• Fact or myth of the privatization schemes
• How to fight to save the program
• Resources for additional information

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OBJECTIVE BUSH IS READY TO GAMBLE WITH YOUR
RETIREMENT We want to stop him by
presenting the fact and fantasy of his social
security privatization proposal so you can stand
up and fight against it
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Social Security Act (SSA) Facts for 2004

• 47.4 million (1 in 6) Americans collected
  Social Security benefits

• 32.8 million retirees and their dependents
• 7.8 million disabled workers and their
  dependents
• 6.8 million survivors (widows, widowers and
  children)
• Approximately 30 of beneficiaries collect
• survivors or disability insurance
• 3 million children are under age 18
  beneficiaries

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• SSA Facts for 2004 (continued)
• SSA paid out 492 billion in benefits in 2004
• 926 is the average monthly retiree benefit for
  2004
• COLA will be 2.7 for 2005, or about 25 a
  month for the typical retiree
• 90 of Americans 65 and older receive Social
  Security benefits
• 98 of Americans work in jobs that contribute
  to the Social Security Trust Fund (SSTF)
• SSTFs annual administration costs are
  approximately 1

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• SSA Financing and Benefit Payments
• FACT
• Social Security benefits are financed through a
  dedicated payroll tax. Employers and employees
  each pay 6.2 of wages up to a taxable cap of
  90,000 (in 2005) into the SSTF
• The cap needs to be removed. For example, a
  NBA
• basketball player earning approximately 10M for
  the 82-game season earns 121,957 per game, and
  exceeds the cap in the third quarter of the first
  game.
• Revenue is also received from income taxation
  of Social Security benefits and from interest
  earnings on the trust fund reserves that are
  invested in Treasury bonds

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• SSA Financing and Benefit Payments (continued)
• FACT (continued)
• While Social Securitys taxes fall hardest on
  those with lowest incomes, the benefits are
  progressive
• ü     replacing half the earnings of a low wage
  worker
• ü     one-third the income of median wage
  earners
• ü     24 of the earning of high wage earners
• With lifetime retirement benefits, annual cost
  of living increases, and family benefits, Social
  Security has come close to eliminating poverty
  among the elderly
• Nearly 2/3 of seniors rely on SS as their
  primary income
• source only 2 in 5 receive a pension (WA St
  Alliance for Retired Americans fact sheet.)

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• SSA Financing and Benefit Payments (continued)
• FACT (continued)
• Without Social Security, more than 50 of Senior
  Citizens would be living in poverty
• Women comprise the majority of Social Security
  beneficiaries, 58 of all Social Security
  recipients at age 65 and 71 of all recipients
  by age 85
• Women who qualify for survivor or spousal
  benefits know they will be paid as a matter of
  law (including those divorces after marriages of
  at least 10 years) and without any benefit
  reductions to their husbands or ex- husbands
  (Congressman Jim McDermott web statement)

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• SSA Financing and Benefit Payments (continued)
• FACT (continued)
• In nearly 70 years, Social Security has never
  missed
• a paycheck!
• Social Security is an American success story!
• The real threat to Social Security is
  POLITICAL!

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• MYTH SOCIAL SECURITY IS GOING BANKRUPT!
• FACT
• The SSA Trust Fund faces a challenge,
• not a crisis
• While increased longevity and reduced worker
  contributions are concerns, modest adjustments
  will provide trust fund stability

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• MYTH SOCIAL SECURITY IS GOING BANKRUPT!
• (continued)
• FACT (continued)
• 2004 SSTF Trustee Report 91 Billion excess in
  2005 projected future financing in three stages
• 2018 Benefits cost exceeds tax revenue
• 2018 Trust Fund begins to use interest (on
  bonds) to pay benefits. Interest expected to be
  4 Trillion by 2018
• 2042 Interest on bonds used up payroll tax
  only funding at 73 of benefit amount.
  (Seattle Times 1/9/05)

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• MYTH SOCIAL SECURITY IS GOING BANKRUPT!
• (continued)
• FACT (continued)
• The CBO (Congressional Budget Office a
  bi-partisan agency) estimates that the SSTF will
  be fully solvent for nearly fifty years and will
  continue to pay 80 of benefits, if nothing is
  done to the system.
• The Bush proposal (reducing Social Security
  payroll taxes by 2) would move the solvency
  date to 2021
• Taking the income cap off of Social Security
  payroll taxes would pay for all future
  insolvency. (FYI- The Medicare payroll tax is
  not capped)

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• BUSH PROPOSAL
• Allow younger workers to invest 2 of their
  Social Security payroll taxes in individual
  private investment accounts for someone
  earning 35,000 annually that equals 700 per
  year (Seattle Times, 12/2/04)
• Analysts estimate that it will take 2 Trillion
  in transition costs over 10 years to privatize
  the system because payroll taxes would plunge
  immediately while the governments obligation to
  existing retirees would decline slowly
• Investment choices would be tightly controlled
  by the federal government
• May require workers to convert all of their
  private
• retirement accounts into an annuity at
  retirement

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• ANNUITIES
• Require an annual administration fee to an
  insurance
• company that averages 10-20
• Are not adjusted for inflation
• Often are not inheritable
• Penalize women
• Women earn 72 cents for every dollar men earn
  about 250,000 less in a lifetime to save and
  invest
• Women who take time out, or work part-time, due
  to care-giving responsibilities, have less to
  invest

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• THE DISABLED
• About 16 of Social Security beneficiaries are
  disabled workers and their dependents
• Three in ten of todays 20 year olds will
  become disabled before reaching age 67 (source
  SSA)
• Current Social Security disability benefits are
  calculated using the same formula as retirement
  benefits
• Annuities are not designed for disabled persons
  
• If future retirement benefits are cut,
  disability benefits would also be reduced unless
  the disability program is separated from the
  proposed privatization plan
• How would investment accounts be structured for
  disabled persons? (source Seattle PI,
  1/18/2005)

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• Concerns With Privatization Proposals
• Privatization that is meant to replace Social
  Security
• benefits is wrong
• Privatization will take approximately 2
  trillion from the SSTF in 10 years and move it
  into the stock market
• Chile privatized its government retirement fund
  25 yrs ago. Today, pensioners with private
  account receive approximately 50 less than
  those who stayed with the old system. (source
  Seattle PI , 1/31/2005)

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• Concerns With Privatization Proposals (continued)
• Privatization will endanger benefits for
  current beneficiaries and would directly cut
  benefits by 50 for future retirees -- even for
  those who set up private investment accounts
• Such a transfer of monies out of the SSTF would
  exhaust the SSTF 21 years sooner than currently
  projected

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Concerns With Privatization Proposals (continued)

• Stock market investment is dangerous
• Senator Frist invested his PAC (Political Action
  Committee) contributions, also called campaign
  money, in the stock market and lost 460,000 in
  2004
• An AARP study found that 20 of older Americans
  who lost money in the stock market between 2000
  and 2002 postponed their retirement dates
• The stock market has a history of twenty year
  swings. Those who retire when their investment
  is on the down side will have less retirement
  investment than those who retire at the top of
  the curve

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Concerns With Privatization Proposals (continued)

• Stock market investment is dangerous
  (continued)

• Ø     Wall Street interests stand to gain
  millions in new administration fees under the
  Republican proposal. (Every 100 paid in
  benefits equals 60 cents in administration fees)
  --Dean Baker, Economist Seattle, 12/13/2004
• The beneficiary of the Republican scam is NOT
  you,
• but the WALL STREET BACKERS (the return to them
  is estimated to be as high as 940 Billion).
• Seven out of the top ten donors to the Bush
  campaign were Wall Street firms

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Concerns With Privatization Proposals (continued)

• Stock market investment is dangerous
  (continued)

Ø     Private accounts make no provision for
disability or survivor benefits Ø     Annuities
charge high premiums if such benefits are
offered    
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What Others are Saying About Social Security
Privatization
U.S. Senator Lindsay Graham (R- S. Carolina) an
ardent advocate of private accounts, he recently
departed from Bush by suggesting that higher
taxes might be preferable to soaring debt. See
www.graham.senate.gov Robert "Bob" Bynum,
former SSA Deputy Commissioner for Operations and
now a member of the National Committee to
Preserve Social Security and Medicare I hope
that I'm wrong, but I'm convinced that high-level
politicians want to do away with the system and
this is what this privatization talk is all
about. Social Security isn't broken,
congressional and White House studies have found
that, if nothing were done, the Social Security
Trust Fund would have enough money to pay 100
percent of benefits for at least the next 42
years. And if nothing were done, it would still
have enough left beyond that time to pay out 70
percent of benefits.

The Birmingham News 1/1/05
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What Others are Saying About Social Security
Privatization (continued)
PRIVATIZING SOCIAL SECURITY replacing the
current system, in whole or in part, with
personal investment accounts wont do anything
to strengthen the systems finances. If
anything, it will make things worse. Nonetheles
s, the politics of privatization depend crucially
on convincing the public that the system is in
imminent danger of collapse, that we must destroy
Social Security in order to save it. Theres
nothing strange or mysterious about how Social
Security works Its just a government program
supported by a dedicated tax on payroll earnings,
just as highway maintenance is supported by a
dedicated tax on gasoline Paul Krugman,
Syndicated Columnist December 8, 2004, The
New York Times
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What Others are Saying About Social Security
Privatization (continued)
Senator Max Baucus (D-MT) whose support was key
to passing Bushs tax cuts and Medicare
legislation, opposes the Presidents Social
Security Plan saying, It would
exacerbate the problem, not solve it.
(Source Washington
State Alliance for Retired Americans Alert,
1/7/2005)
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Democrats Want

• To receive a detailed proposal from the
  President about his privatization plan
• To save, strengthen and secure the Social
  Security Program.
• To work together with Republicans to ensure
  that America honors its promise to those who
  have worked hard and played by the rules that
  all workers are paid the Social Security
  benefits they were promised

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Democrats Want (continued)

• To work to reduce the deficit in order to
  protect the SSTF.
• The 2004 U.S. deficit is 413 billion. It would
  have been much higher if the budget had not been
  supplemented by more than 200 billion in Social
  Security and Medicare trust funds (Seattle
  Times, 12/27/2004)
• Return to fiscal discipline and strong
  pay-as- you-go budget rules (pay for what you
  spend rather than borrow)
• Restore the 1 trillion in irresponsible tax
  breaks that were partially paid for by
  borrowing from the SSTF

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Democrats Want (continued)

• To encourage private savings such as 401k and
  IRA accounts without cutting Social Security
• To provide clear and unbiased information on
  retirement investment options
• BUT DEMOCRATS CAN NOT
• Support any plan that relies on massive and
• irresponsible increases in debt that
  could destabilize
• markets and lead to large tax increases
• Allow citizens to be guinea pigs for a
  political experiment

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• What You Can Do
• Organize! Ensure that all community, union,
  and political organizations are aware of the
  fraudulent Republican campaign
• Spread the truth! Educate others on the
  unacceptable costs of private accounts
• --Cuts in guaranteed benefits
• --Unacceptable levels of stock market risk

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• What You Can Do (continued)
• Challenge the media assumption on the the
  crises
• Share your Social Security story. Write a
  letter to the editor about what it means to you
  and its importance to your children and
  grandchildren. 
• Visit/contact your U.S. Senators and
  Representatives and let them know you are
  against the privatization, in any manner, of
  the Social Security Trust Fund.

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For Social Security is a government program that
works, a demonstration that a modest amount of
taxing and spending can make peoples lives
better and more secure. And thats why the
right wants to destroy it. Paul
Krugman, Syndicated Columnist December 8,
2004, New York Times
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Appendices
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Brief history of Social Security  
FDR, motivated by his great empathy for
less fortunate Americans, strove to establish
cradle-to-the-grave social security.
Gauging the political winds and taking into
account the prevailing 1930s wisdom about
economic policy, he calculated how much social
security would be accepted by the American
people, the economy, and the political power
brokers, and got the most progressive law anyone
could reasonably have expected in 1935
FDR and
the Origins of Social Security
by Bill Hunot,
Social Security Administration
April 25, 2002  

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• Brief history of Social Security (continued)
•      1929 - U.S. Stock Market crash - millions
  of Americans out of work, living in poverty,
  standing in bread lines for handouts to feed
  their families. President Hoover believed the
  situation would correct itself and suggested
  charity and voluntary relief efforts
  Unemployment rose to 25 and discontent
  increased
• 1932 - FDR elected by promising a New
  Deal that included a Social Security System
  based on principles of social insurance
  Germany adopted in 1889
•      1934 - Congress passed the Social Security
  Act by a margin of 372-33 in the House, 77-6 in
  the Senate
•      1935 - President Roosevelt signed law.
  SSA - 70 yrs old!
•    

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• History (continued)
•  
• The law also created the federal unemployment
  system, the Aid to Families with Dependent
  Children Program (AFDC) and now abolished, and
  grants to states to pay for medical care
• 1937 - first payroll taxes collected
• Lump sums were paid to retirees for the first
  few years of the program
• 1939 - Spouses and children of retired workers
  were added as beneficiaries
• 1940 - first monthly benefit (22.54) paid to
  Ida May Fuller who lived to be 100 years.

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• History (continued)
•  
• 1950 - Congress authorized a 77 increase to
  adjust for higher cost of living
• 1956 - disabled workers aged 50-64 added as
  beneficiaries
• 1961 President Eisenhower removed disability
  age requirement and authorized dependents of
  disabled workers as beneficiaries
• 1965 - SSA administers Medicare which became
  law that
• year

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• History (continued)
•  
• 1970 - SSI (Supplemental Security Income) new
  program administered by SSA (SSI, a program for
  poor elderly and disabled, is supported from
  general tax revenues)
• 1975 - annual COLAs authorized
• 1983 - President Reagan reduces benefits
  (college-age
• dependent children dropped)
• Due to SSTF Trustees increased payroll tax to
  12.4, future retirement age to 67, and wage cap
  to 90,000
• 1999 - end of paper checks- all directly
  deposited into bank accounts

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For Additional Information, Contact AARP
www.aarp.org The Alliance for Retired Americans
www.retiredamericans.org - 206.448.0859 The
Economic Opportunity Institute
www.EIOonline.org - 206.633.6580, Marilyn
Watkins Older Womens League (OWL)
WWW.OWL-NATIONAL.ORG - 206. .781.6679 US
Senator Patty Murray http//www.murray.senate.go
v US Senator Maria Cantwell http//www.cantwell
.senate.gov US Congressman Jim McDermott
www.house.gov/mcdermott - 206.553.7170 US
Congressman Jay Inslee www.house.gov/inslee US
Congressman Adam Smith www.house.gov/adamsmith
UW House of Representatives legislative
information http//thomas.loc.gov/ US
Congressional Budget Office www.cbo.gov Social
Security Administration www.ssa.gov US Senator
Lindsay Graham www.graham.senate.gov KCDCC
http//www.kcdems.org
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Sources   The Seattle Times - 12/12/04,
12/19/04, 12/27/04 The Seattle Post-Intelligencer
- 12/10/04, 12/26/04 The New York Times
12/8/04, 12/30/04 The Tri-City Herald
1/2/05 Dean Baker, Economist Seattle,
12/13/04 OWL letter to President Bush 12/16/04
(see Owl website) The Social Security
Administration The Economic Opportunity
Institute The Alliance for Retired Americans The
Washington State Alliance for Retired Americans
wasara_at_qwest.net US Congressman McDermotts
website US House Budget and Ways and Means
Committee Democratic staff AARP