Social Security privatization schemes are courting disaster, panel agrees

Social Security privatization schemes are courting disaster, panel agrees
Jenny Brown
May/June 1999

Social Security is one of our most successful programs and should be left alone. This was the unanimous opinion of a panel of trade unionists, Social Security recipients and experts who assembled to discuss Social Security at a Community Summit in Gainesville on April 8.

"We remember the bad old days," said Elsie Allen, representing the Central Labor Council of North Central Florida. She said that the union movement fought for and won Social Security in the '30's. Before Social Security, when workers got older, employers laid off or fired them and they had no guarantee of any compensation for their old age. Workers for the most part had no pensions and were reliant on those in their families still earning a wage to care for them. They had no security and no independence. Without Social Security, more than half the elderly would live in poverty, whereas 11 percent live in poverty today.

Matthew Marsh of the American Federation of Government Employees, who works for the Social Security administration, called Social Security a "shared risk program." He argued that the projections that Social Security will be unable to pay out benefits because of a wave of baby boom retirements are a myth which some are using as an excuse to eliminate this successful public program.

Marsh said that while there is some talk of Social Security being a "remnant of the New Deal" in fact it is needed now as much as it ever was because there is a trend toward private pension plans requiring that employees make larger contributions while employers make smaller contributions. Also, newer plans such as 401(K) plans leave employees to bear the risks of investment rather than employers bearing the risks as in the past.

Private pensions tied to a job prevent workers from leaving their jobs to seek better employment--and make it harder for workers to agitate on the job for better working conditions, knowing they might get fired. With Social Security, all your years of employment count towards your benefits--and they count on every dollar you earn on every paycheck you get. Employers are required to put in a set amount, and it's illegal for them to not put the money in, although some still get around paying by calling their employees 'independent contractors'--especially in the building trades and farmwork.

Representative Karen Thurman pointed out that the Social Security system is much less biased against women than the private retirement plans and annuities women get. Thurman represents Florida's Fifth congressional district in the U.S. House.

Social Security "doesn't take into account whether you're a man or a woman," Thurman said. "Women work [outside the home] 11 years on average less that men," over a lifetime of work and average 4.7 years at the same job. Therefore they are unlikely to even get into private pension plans, which generally require that you work at the same job 5 or 10 years.

She also stated that since women get paid only 74 cents for every dollar a man makes, women have less money to invest from their lifetime of work.

And since women are expected to live longer, in the case of annuities, they get less money per month in these private plans than men do. In contrast, Social Security payments aren't smaller based on your expected life span, instead they are based on the best 35 years of your earnings. With Social Security there is never any danger of "outliving your savings." Social Security payments continue as long as you live.

Workers become eligible for Social Security retirement benefits essentially if they did 10 years or more of paid work during their lives. Widows and widowers are eligible for their partner's benefit if it's higher than theirs and they were married at least 10 years. This particularly helps women who worked in the home for all or part of their work lives.

Thurman said she didn't think Social Security is broke. "Sometimes we ought to leave things that aren't broke alone and fix what needs to be fixed," she said.

This reporter asked Thurman why there has not been any discussion of raising the employer's part of the Social Security tax, since the trend has been that employers are making more money and workers are making less. Thurman responded that she didn't think it was politically possible to discuss because business groups would lobby against it.

Peg Libertus, Vice President of the Center for Independent Living, asked where the idea that Social Security is old and outdated came from. "Before Social Security we had 10,000 years of privatization," she stated, "until humans clearly demonstrated they weren't going to do it privately." Libertus, who is in a wheelchair, pointed out that while some people may feel secure because they're not a minority or a woman, "I'm in a minority anyone can join, if you take your eyes off the road, or have a stroke," she said.

Libertus called on people to see their self-interest in having Social Security there to help them or their loved ones in case of disability. She also pointed out that having a disability is expensive. "If it weren't for the honor of the thing, I'd rather not have it." She said 49 million Americans have some form of disability. Workers become eligible for disability benefits from Social Security basically if they did at least five years of work within the ten years before they became disabled.

Paul Vasquez of the Florida AFL-CIO said that unions oppose any type of legislation that takes away existing benefits or guarantees of benefits. He said that many project that fees to financiers in a privatized system could total $240 billion over 12 years. (For comparison, the entire federal budget is about $574 billion a year.) Social Security's administrative costs are about 1% of benefits, whereas private insurers use 12 to 14 percent--money which goes to corporate profits, advertising and paper-shuffling. In Chile, which privatized its pension system under the military dictatorship in the 80's, overhead exceeds 20%.

Vasquez posed the question, "If you lose, who gains?" and quoted a State Street Bank executive who said about Social Security privatization, "This could be huge for us." (Washington Post, 1/7/97).

Financiers stand to gain another source of revenue if Social Security is privatized or cut back. Social Security serves as an insurance program, providing disability benefits to workers and death benefits to their families. Without it many would be forced to go to private industry for disability and life insurance. The insurance provided by Social Security is the equivalent of a $328,000 life insurance policy and a $220,000 disability insurance policy. Of course, most people can't afford life insurance and disability insurance, certainly not with the full coverage Social Security provides. Many would face disaster without a safety net, losing their chance at a way to support themselves or their families with dignity.

Audience members objected to the use of the Social Security trust fund money as "surplus" in the federal government's general operating budget, a practice that was started under President Johnson to hide the costs of the Vietnam War. They pointed out that the "budget surplus" President Clinton talks about is actually Social Security Trust Fund money, and demanded that it be protected and used for Social Security.

Rep. Thurman said that she felt that Congress had a duty to pay down the national debt with this money.

Audience member Paula Stahmer questioned that. She stated that the rate of taxation on corporations has dropped drastically since the 50's, leading to these federal budget problems. Another audience member said that protecting the livelihood of seniors is just as important as national defense.

Although all panel members regarded the Social Security system as essential, panelist Harriet Ludwig said changes are needed--but that the privatizers are going in the wrong direction. She pointed out that Social Security payments are in many cases not enough to keep a person out of poverty. She said that we should raise benefits, which are supposed to keep up with the cost of living, but which really haven't kept pace with increased costs. One way this can be done, Ludwig said, is to "raise the cap." Social Security tax is only paid on the first $72,600 of income. Incredibly, there is no tax on income received over $72,600, it is capped.

If this cap on Social Security tax were removed, the additional taxes collected from the few people who make over $72,600 a year would "generate more than 100% of the shortfall [projected over 75 years] ... about $80 billion annually" according to Marvin Mandell, an emeritus professor at Curry College, writing recently in the Labor Party Press. Investment income is also now exempt from Social Security tax.

Panelist Marna Weston pointed out that wages have been dropping which is one reason there is less money in the Social Security system. This is yet another way falling wages and the corresponding increase in corporate profits is hurting nearly everyone.

The April 8 Community Summit on Social Security was sponsored by the North Central Florida Central Labor Council, AFL-CIO and the American Federation of Government Employees. For more information on Social Security from the AFL-CIO, go to www.aflcio.org/socialsecurity. If you want to find out about your own benefits, call the Social Security Administration at 1-800-772-1213. They will send you a simple form to fill out.