Social Security, a proposed problem according to the Bush administration, only conforms to the image of a "crisis" if one indulges the superficial arguments the White House is issuing in defense of the system's drastic change. The idea of restructuring the benefit system that has aided the elderly for decades throughout the majority of the twentieth century will in fact harm America more than help it.
The whole concept of the social security reform is the "personalization," or in reality, privatization of annual social security funds to be partially invested in stocks. That is, under the Bush model, a percent of payroll taxes – specifically 4 (four) percentage points – could be invested out of a 6.2 (six point two) percent payroll tax for social security in the stock market or bonds while an annual payment would still be allotted to all who apply for benefits.
Recently Washington proposed this comparison: a worker who doesn't invest in a personal account may receive $15,000 annually when retired, whereas a similar worker who invests in private accounts may get $10,000 annual benefits but receive $7,000 from the private account. Thus, the total of $17,000 achieved from private accounts and traditional social security payments would outweigh the traditional payment.
Considering that, admittedly, the private investor only has "the potential for receiving higher payouts," the advocates of the radical plan are extremely confident of success, if not overzealous. Bush states that a "nest egg" will be provided for the adventurous laborers, alleging that, according to the Social Security Administration, a concoction of stocks, bonds, and traditional payment would mean (inflation accounted) a 4.6 (four point six) percent of money returns. This 4.6 percent represents the claimed $2,000 bonus presented by private accounts.
Of course, being considerably adamant on the issue, most Republicans and privatization supporters vastly overlook the inevitable consequences of the Bush changes. The most outstanding figure is the near four trillion that the altering of social security would devour. Assuming the privately investing worker receives his four percent of returns, three percent of these returns would have to compensate the trillions of dollars cost of the plan as interest to avoid further debt in future governments. This accompanied with an existing fee of one percent tax would provide a net gain of absolutely nothing, hence the "possibility" of gain. Furthermore, the private investor is bound to experience stock market turbulence (discussed below).
Steps to prevent the zero net gain situation (as presented under the current proposed social security guidelines) and thus the success of private accounts will be to cut guaranteed benefits, something the White House is intent on doing. However, according to the Center for Budget Policy and Priorities, this will amount to a 46 (forty-six) percent loss in traditional social security funds. America's future elderly, start lamenting. Among other possibilities to allay this hefty expense are raising the retirement ages, taxing companies harder, and extending the social security tax past those who make an income of $90,000 and above. Excluded from these possibilities is Bush's tax cut, which he wants to make permanent and also has a gruesome budget problem of its own…
The definite loss in guaranteed funds would, on a large spectrum, affect those who essentially depend on social security – the lower class – the most. A possible solution for this problem is the hybrid wage and inflation indexing, a combination of an annual wage growth, or funds indexed by growth of wages, and inflation growth, or funds indexed by growth of in inflation. The inflation indexing usually bears less money than wage indexing. This highly considered technique of "progressive indexing" would allow workers earning under $25,000 to use wage indexing and all other retirees to use inflation indexing. Again, unsteady outcomes in the stock market for all private investors.
Though this may help, the AARP, a large representative of all Americans at the age of fifty and over, says this would merely make social security a poverty program. What is more, price indexing itself would cut annual payment as the Center for Retirement Research at Boston College shows in a study. That is, under the existing social security, a worker who earns an average wage of $35,223 in 2004 dollars (dollars at the rate of inflation in 2004) would receive an annual social security check of $17,533 upon retirement in 2025. With price indexing, that benefit would fall to $14,342. In addition, the current system in 2055 would provide an annual fund of $21,770 for the average worker – with price indexing thrown into the system, the reduced amount would be a meager $14,695.
The risk is not worth it considering that the social security trust fund can theoretically never run out if the economy persistently rises. According to the social security trustees, however, the economy is expected to slow to a rate of 1.8 (one point eight) percent in the future. The proposition of privatization is then ironic in the face of this information, considering for the system to work, the US economy would have to persistently grow at an unprecedented rate of three or four percent .
If this didn't occur, the stock market would of course, being a reflection of the economy, falter, and thus private accounts would lose ground with the economy. Considering this, economic bubbles of progress and regress would offer random benefits for equal investors (according to the amount they can invest), whether good or bad. A complete economic collapse such as the Great Depression would signify utter loss for the private investor.
The planned death benefits that Bush has tried to capitalize off of in his propaganda campaign for the unneeded change in social security are even bogus. After analyzing the program's details, many workers won't be able to pass the proposed "nest egg" of retirement funds to heirs. Also, the annuity of social security funds, meant to provide basic sustenance, would not be inheritable by a deceased relative.
Aside from all of this, Bush is optimistic. Still upholding allegations that the social security trust fund will run out at 2042, he fails to mention that at that time over 70 (seventy) percent of benefits will be able to be paid. Deficit issues form a transparent wall between the White House's determination to implement a privatized social security fund and reality, something to be looked through but not considered. Bush should take a hint from his buddy Tony Blair in Britain, and note that in England many elderly are poor. Overconfidence in the economy and investors only spells bad news and a less stabilized elderly.
Though I personally don't believe this plan will pass Congress, the sole thought of it being enacted is scary, especially because those who are in line to suffer argue in its favor. The probable victims of the social security change must recognize that the "crisis" in social security is merely another, seemingly habitual fiscal scare of the Bush administration, one which (with proof) won't materialize with some minor changes. Republicans, disillusioned enthusiast, the AARP correctly states that winners and losers aren't retirement terms. Seeing the undeniable risks that Washington doesn't present, I agree with the Democratic North Dakota Representative Earl Pomeroy when he says, "The devil will be in the details, and that's why they are trying so hard to sell this without anyone knowing what's in it."