Relentless and ominous, the drumbeat echoes across the land: Social Security is on the verge of bankruptcy. The warning has been repeated so often that it has become a dismal article of faith for the millions of Americans who pay Social Security taxes and expect to collect benefits someday. But it is flatly untrue. Social Security today is as financially strong as it has been in decades. Despite its relative good health, however, it is facing the most dangerous political challenge to its existence since its birth 70 years ago. The Plot Against Social Security explains who is really behind the efforts to "reform" this system and shows that the most frequently proposed fix diverting a huge portion of its assets into private investment accounts will damage it beyond repair, undermining retirement security for generations of Americans.
Award-winning journalist Michael Hiltzik documents the privatization lobby's ties to the brokerage and insurance industries that stand to profit from the proposed changes. He debunks the myths disseminated by Social Security's enemies, repeated by rote even by its friends and now accepted as gospel by many Americans including claims that the retirement of baby boomers will plunge the system into bankruptcy; that the $1.7 trillion in government securities held by the Social Security trust fund are worthless pieces of paper; and that workers can earn better returns on their payroll tax contributions by investing them privately than by leaving them in the system. Finally, he offers a clear set of remedies for those few elements of Social Security that do need repair proposals that will shore up the most effcient social insurance program in America's history rather than destroyingit in the name of reform.
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About the Author
Michael A. Hiltzik is a Pulitzer Prize-winning columnist for the Los Angeles Times. In 2004 he won a Gerald Loeb Award, the highest honor in American financial journalism. Hiltzik is the author of Dealers of Lightning: Xerox Parc and the Dawn of the Computer Age and A Death in Kenya. He lives in Southern California with his wife and two sons.
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The Plot Against Social SecurityHow the Bush Plan Is Endangering Our Financial Future
By Michael A. Hiltzik
HarperCollins Publishers, Inc.Copyright © 2005 Michael A. Hiltzik
All right reserved.
The Bush Blitz
On January 11, 2005, President George W. Bush perched himself on a stool onstage at the Andrew W. Mellon Auditorium in Washington, flanked by a few dozen ostensibly ordinary American citizens.
Addressing his audience from beneath the gilded colonnade of the grand old government hall, he thanked them for coming that day "to talk about one of the great causes of our generation, and that is how to strengthen and save Social Security for generations to come." Gripping a plump microphone and speaking in his characteristic tone of folksy earnestness before a national television audience, he reiterated his already familiar admonition that the national pension and disability program was mortally ill. His onstage companions, including a young Utah dairy farmer, an ambulance company operator from the state of Washington, a Maryland businesswoman and her elderly mother, and a bright young official from the Social Security Administration itself, listened raptly as he warned that Social Security might well not exist when the time came for them to retire.
"If you're twenty years old, in your mid-twenties, and you're beginning to work, I want you to think about a Social Security system that will be flat bust ... bankrupt, unless the United States Congress has got the willingness to act now," he said. "And that's what we're here to talk about, a system that will be bankrupt."
The best way to protect themselves from that dreadful outcome, he said, was to keep some of the money they were paying each year into this rickety Depression-era system and invest it by themselves, for themselves. And he was determined to push a law through Congress setting up a system of private retirement accounts that would enable them to do exactly that.
George Bush had been thinking about Social Security reform at least as far back as his tenure as governor of Texas, when he had invited experts to his ranch to chat about the program's future. He made reform a major plank in his 2000 presidential campaign, and became convinced that his endorsement of private accounts had been an essential factor in his electoral victory. Once inaugurated, he promptly made good on his campaign rhetoric by appointing a blue-ribbon reform commission to craft a privatization plan. But as a domestic policy initiative Social Security got overwhelmed by the 9/11 attack and, subsequently, by the Iraq war.
Immediately following his reelection, however, the president launched a blitzkrieg on Social Security. In nationally televised speeches, appearances before blue-ribbon White House economic conferences and interviews with trusted journalists, Bush, renowned for his ability to stay "on message," delivered the gospel of radical reform, often repeating the same phrases by rote. The centerpiece of this program was a system that would allow workers to withhold a few percentage points of the 12.4 percent payroll tax from the system and invest the money on their own. The reform would relieve Social Security of its crushing deficit, he contended, while giving every American a personal retirement stake that could be bequeathed to survivors. "At the same time that you manage your own account, you own your own account," the president proclaimed to the Mellon Auditorium crowd. "I love promoting ownership in America."
Administration officials and Republican legislators fanned out to the Sunday TV talk shows to warn of the imminent crisis and pitch privatization as the solution. Callers to the Social Security Administration's help line heard not music while they languished on hold, but messages warning of the program's looming insolvency and the necessity of hasty, dramatic change. White House fundraisers started to squeeze their most dependable contributors to pay for a television campaign budgeted at a cool $100 million. The campaign's architects billed the effort to remake Social Security as "one of the most important conservative undertakings of modern times" and "one of the most significant conservative governing achievements ever."
Their goal was no less than to dismantle one of the last surviving edifices of the New Deal.
President Bush has called his proposed policy "a promise to reform and preserve Social Security."
In fact, his proposal would neither reform nor preserve Social Security. In the name of preservation, it would destroy the nation's most comprehensive social insurance program and replace it with a system bearing enormous costs and risks for millions of workers and retirees.
The Social Security privatizers dress up their proposal with the premise that all Americans will be able to earn annual investment returns in the stock market of 7 or 8 percent a year, after inflation -- a figure that makes the putative return on Social Security payroll taxes look paltry indeed. The market will make every American owning a private account a millionaire upon retirement, they say. (The New York Times headlined a recent op-ed piece on the topic by former treasury secretary Paul O'Neill, a devout privateer, "Who Wants to Be a Millionaire?")
What they don't tell you is that many economists question the likelihood of consistently earning such a return from stocks. In fact, they say it's almost impossible. For U.S. equities to turn in that kind of performance over the next several decades, the overall U.S. economy would have to grow at a pace that, all by itself, would place Social Security on the strongest fiscal footing in its history -- not only far from bankrupt, but rich enough to bail out the rest of the federal government. (This is according to the Social Security system's own estimates.)
The privatizers don't mention, moreover, that the new system would require such complicated administrative oversight that the Social Security Administration, perhaps the most efficient arm of the federal government, would have to hire as many as 100,000 new employees. (This estimate comes from an executive at Fidelity Investments, which favors private accounts.) Account management fees -- which would flow to some of the same financial services companies backing the privatization campaign -- would eat up a good portion of the workers' savings ...
Excerpted from The Plot Against Social Security by Michael A. Hiltzik Copyright © 2005 by Michael A. Hiltzik.
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