Social Security – CRISIS or Political Propaganda?

Social Security – CRISIS or Political Propaganda?

Cheryl Reynolds
Guerrillas4Truth … January 24, 2005
Tollhouse CA


Here we go again, the President of fabrication, CRISIS, and fear mongering.
What virtues! It is time for “we the people” to pay attention to the facts, not
rhetoric. The Bush propaganda extravaganza is corrosive to Democracy.


Seniors used to be the age group with the highest poverty level, now they are
the lowest. The Social Security program has been a stunning success. In all of
the discussions that come up we need to focus on SECURITY.


If workers want the same level of benefits retirees currently have, under the
Bush plan they would have to pay management fees to Wall Street for their
private accounts (SS management fees are a fraction of private fees) to the tune
of approximately $940 BILLION at present value; pay insurance premiums for
annuities; plus pay the TRILLIONS of dollars in transition costs.


Workers would also have labor market risks. In a recession or depression, as we
periodically have, wages are down, unemployment is high, and available money for
investment is low. Add to the equation if you are a woman or a minority with lower
lifetime earnings, and less opportunity to save, and greater employment fluctuat-
ion. SS is the only way to reduce labor market risks. Then of course you always
have the chance of poor investment judgement.


Currently there is a huge disparity between Bush’s rhetoric and actual numbers.
The SS Administration has always projected the health of the plan for 75 years
according to law. Last year Bush insisted that they also project to the “infinite
future”, which is where they come up with the $11 BILLION shortfall.


The Congressional Budget Office (CBO) and the SS actuaries say the shortfall is
close to $3.4 BILLION using the 75 year projection. The American Academy of
Actuaries (a non-partisan organization that sets standards of practice for U.S.
actuaries) says that the “infinite future” projection is likely to mislead the public
into thinking “the system is in far worse financial condition than is actually
indicated,” and therefore should not be used to explain the long term outlook.
Seventy five years in itself has many uncertain aspects. They also said, “these
values are a detriment to the Trustees charge to provide meaningful and balanced
presentation of the financial status of the program.”


The actuaries believe that the SS Trustees projections are based on pessimistic
assumptions about the future, and that the CBO is much more optimistic. Four of
the six trustees are appointed by Bush; the Treasury, Labor, Health and Human
Services Secretaries, and the SS Commissioner. In 1977 the SS Administration
said in 2029 we would begin facing a shortfall. By 2003 that projection has been
moved up to 2042. A gain of 13 years in 6 years is hardly a BANKRUPT system.


By comparison to the $3.4 BILLION shortfall, the increase in annual defense spend-
ing since 2001 has been more than 1% of GDP, twice the size of the SS projected
shortfall according to the CBO. Reversing the Bush tax cuts on the wealthiest would
raise enough revenue to cover the shortfall for the entire 75 years. A moral, ethical
administration would value “we the people” over the extremely wealthy, and of course
there is always the issue of corporate welfare to take into account. The money is
there, Bush is just looking in all the wrong places.


Stock returns in the future are projected to be lower than in the past. Project-
ions of stock returns, profit growth, and price to earnings ratios are approximately
5% above the inflation rate. With private accounts, the stock and bond mix in
investment and the implied return after administrative fees would be approx-
imately 3.5%. The SS Trust Fund government bond rate of return is projected to
be 3%. The market has done worse than 3% per annum in 9 different 20 year
periods.


RISK! Vs. SECURITY!

The Bush transition costs would be as high as $ 200 BILLION per year (2% of
GDP) for more than 30 years, substantially increasing the deficit. Bush wants to
keep this increased deficit outside the budget. He continues to fund his never
ending war costs outside the budget, which still increases the deficit. Adding
$200 BILLION a year to the deficit makes it far more likely we will face consider-
ably higher interest rates in the near future.


Bush points out that in 2018 SS will be forced to rely on income from the Trust
Fund to pay benefits rather than from the surplus. It was designed that way by
the SS Administration in 1983, chaired by Alan Greenspan. Pension plans regularly
pay benefits to their retirees with their assets. Nothing unusual there.


According to the Wall Street Journal/NBC News Poll, only 35% of Americans think
Bush has a mandate for partial privatization of SS, and surely most of them do not
have half the facts presented here.


The BIG FABRICATION is that partial privatization will shore up SS and ensure
benefits. It will only speed up the financial problems, and expand deficits that will
threaten the overall economy. We expect candor and ethical behavior from our
leaders, not fabrication and manipulation. The long term deficit will be reduced
exclusively through DEEP benefit cuts.


The tricky Dick part of the plan is Bush wants to change how future benefits are
calculated from wage indexed to price indexed. Since wages typically grow faster
than inflation, this would be a substantial benefit cut and savings to the govern-
ment. The savings would result from REDUCTIONS in BENEFITS, not the decision
to privatize. The private accounts would not make up for the benefit cuts, result-
ing in reduced combined benefits for retirees.


According to the CBO, a low income retiree in 2035 would receive annual benefits,
including the annuity from his/her private account, of $9,100. This is $400 LESS
than the benefits under the present wage indexed program.


A median income retiree will receive $13,600 with price indexing (Bush program)
would be cut SEVERELY from $17,700 under wage indexing to $13,600 under price
indexing. According to an analysis of the White House Plan done by the NY Times,
by 2065 the annual benefit for a typical retiree, in today’s dollars, would decline
from $26,400 under current law to $14,600 under price indexing.


An interesting concept, according to Roger Lowenstein in “A Question Of
Numbers”, is SS could capture the return on stocks without putting individual
investors at risk by investing in equities directly, thus keeping the governments
hands off the SS Trust Fund. The option would be far more efficient in economic
terms than separating the investments into 150 million individual accounts. Costs
are much lower for one big investor and benefits would not vary with individual
choices. The system can also be tweaked in very minor ways over time including the
age of retirement, the cap on taxable income, and a minor reduction in benefits,
plus a redeployment of the Trust Fund into assets that are truly in a Lock Box.


With the shift from defined benefit pension plans to 401K’s, plus Bush’s SS partial
privatization, SECURE RETIREMENT becomes an oxymoron. Just remember the
market in 2001-2003. The ideological, pro free market choice in the “ownership
society” is pure hype. Private investment is desirable and should be encouraged
outside of the SECURITY of Social Security.


Where are the morals and values of a President who would fabricate and deceive us
AGAIN? Oh what a web we weave when we practice to deceive.



Cheryl Reynolds
Member … http://groups.yahoo.com/group/Guerrillas4Truth/