Social Security Privatization
Is a Conservative Project

Social Security is under threat. Yes, the threat was beaten back, this time, but the threat is still there. President Bush still wants to privatize part of the program; his proposal has resurfaced in his agenda for his second term, and he will keep trying. The reason he gives is spurious: he says that our income security is in financial trouble.

Compared to the government as a whole, Social Security is in great shape. It has a huge and still accumulating trust fund; between the fund and the current payroll tax, Social Security will be able to pay full benefits until 2032 even by conservative estimates. After that it will still be able to pay about 75% of benefits if no changes are made. The rest of the government is in huge deficit ("only" $300 billion instead of a phony projection of $450 billion), so, Social Security's financial "crisis" doesn't look like a crisis at all.

Obviously, some changes have to be made to fully fund Social Security after 2032, but that's not what Bush wants. He (and his supporters) propose siphoning off some of the current taxes paid into the fund to create what he calls "private accounts."

Since the problem is lack of funds in the future, this doesn't look like a great solution.

To maintain current benefits, privatization would require massive borrowing ($1-$3 trillion). Why? The portion of payroll taxes Bush would withhold for private accounts would create a huge shortfall in Social Security's income, accelerating and increasing the financial difficulties Social Security would eventually face, not solving the problem at all.

There are also the projected costs to the "private account" holder. These would be much higher than the 1% cost incurred by Social Security now. Analysts estimate costs of 4-10% (costs to the account holder=profits to the brokers). Yet returns from the stock market would be uncertain, that is, not guaranteed.

Returns to Social Security are guaranteed, and in fact are periodically upgraded by cost of living increments passed by Congress. Bush wants to tinker with these, too, pegging cost of living increases to wage levels (which have hardly budged, while the wealthy have been enjoying huge--non-wage--increases). Since the cost of living increments were based on actual inflation levels, the change to wage-levels would reduce these, too, and quite significantly over time.

The interesting question is: why is the President promoting privatization? This is where we get into the details of what motivates the powers-that-be, what I call the selfish class. Go to The Logic of the Selfish Class. If you identify Bush's supporters on this issue, you will understand why they want privatization; it is not for the good of the country, or for financial stabilization; they are Wall Street stock brokers. They would make several hundred billion dollars if his plan was implemented. It does not seem to concern him, or them, that the plan could destabilize or destroy the financial basis of our most successful income security program. Projected profits blind them. They are truly members of the selfish class.

Why are conservatives (not bankers, not brokers, but ideological conservatives) for privatization? It fits their worship of private enterprise, and Social Security apparently sounds like Socialism to them. It is the centerpiece of the New Deal, which they have been dismantling for two generations; it uses the collective power of the government for the benefit of everyone, and everyone is required to enroll. That means that the well-off are actually helping everyone else, whether they like it or not! That's what conservatives dislike most of all, the acknowledgement and use of the collective interest of the whole, to the (slight) cost to the wealthy. Yes, the better off pay more, although the very wealthy, because of the cut-off in the payroll tax pay no more than the moderately well off.

The cut off is at $90,000, meaning you pay no Social Security tax on income above that and a flat percentage below it. The wealthy actually pay a LOT less in terms of percent of income, because much of their income is above the cutoff and much is "unearned," meaning that it is in the form of capital gains and dividends, income not subject to the payroll tax at all.

There is one more reason, besides ideology, why the selfish class wants to dismantle Social Security, although they may not have thought this through; it would make them more powerful, by making others more vulnerable, i.e. without power. Income security means that a whole class of people--the elderly--cannot be exploited for cheap labor, and cannot be intimidated, either. With private accounts, workers would have to be much more flexible, especially those who had the misfortune to retire when the stock market went down.

So, naturally, for all these reasons, President Bush and his conservative supporters and successors will continue to try to destroy Social Security, and to persuade everyone that it's on its last legs. It is curious that they will try to do this, since Social Security is already funded by a regressive tax (one falling more heavily on the bulk of the people than on the wealthy), and its surplus is helping them pay for the Iraqi war (that was supposed to be paid for by Iraqi oil).

All Social Security needs for adequate funding far into the future, is some re-adjustment of the rates and structure of the payroll tax--such as eliminating the cutoff (as already obtains for the Medicare portion of the payroll tax), or financing some of it in other ways, perhaps a dedicated portion of the Estate Tax, or of the consumption tax that is sure to be adopted soon if conservatives remain in power.