The Guardian Unlimited, August 25, 2008
See article on original website
The idea that social security may soon fall into bankruptcy is just another Republican scare tactic. The programme is sound.
Senator McCain can't remember how many homes he owns, but that shouldn't distract voters from the fact that he wants to take away their social security. It is striking to find an adult who has to get help in counting his homes, but that really is less important than the policies that McCain would try to implement if he were elected president.
McCain has repeatedly expressed interest in privatising social security along the lines proposed by President Bush. For those who have forgotten that nightmare, Bush's plan would have reduced benefits by approximately 1% a year for many workers.
Workers who retire 10 years after the plan was put in place would have seen a 10% reduction in benefits compared with the currently projected levels. Workers who retire 20 years after the plan is implemented would see approximately a 20% cut in benefits, and workers who retire 40 years later would see their benefits cut by close to 40%.
The losses to retired workers could mean big benefits for the financial industry. Under some versions of the plan, the financial industry would rake in hundreds of billions of dollars in fees and commissions over the next 40 years. According to a recent World Bank analysis, the financial industry pocketed 15-20% of the money paid into the privatised social security system in Chile, which has often been held up as a model by privatisers in the US.
Privatisation would be especially painful coming now, in the wake of the collapse of the housing bubble. The huge baby boom cohort that is just now reaching retirement age has seen most of its wealth wiped out by the housing crash.
A recent analysis that I did with David Rosnick, my colleague at the Center for Economic and Policy Research, showed that a typical late baby boomer household (between the ages of 45 and 54) will have less than $100,000 in wealth in 2009. This figure includes 401(k)s, IRAs and other retirement accounts, personal savings and home equity.
A relatively small share of these late baby boomers has traditional, defined benefit pensions. In other words, these families are going to have very little to support themselves in retirement other than the social security that McCain is so anxious to cut.
There is a reason that social security should be in the news right now. The non-partisan Congressional Budget Office just came out with its updated analysis of the programme's finances. The analysis projects that social security will be able to pay all scheduled benefits through the year 2049, with no changes whatsoever. Even after 2049, when the programme is first projected to face a shortfall, the payable benefit is projected to be more than 30% higher than what the average retiree gets today, and the payable amount would continue to rise from that level every year.
The privatisers have worked hard to convince the public that social security is on its last legs, but that is simply a lie. We are going to face many problems that dwarf the dimensions of the projected social security shortfall. For example, the annual cost of the wars in Iraq and Afghanistan is approximately three times as large as the annual revenue that would be needed to eliminate the projected social security shortfall.
The 2049 date when social security is first projected to face a shortfall is more than three decades after the latest date the next president can leave office. McCain will be 113 when social security is first projected to be unable to pay full benefits. In a country where millions of families are struggling to hang onto their homes, and tens of millions are struggling to pay for healthcare and childcare, a distant and relatively minor problem like the projected social security shortfall hardly warrants centre stage.
The public should know that social security is fundamentally sound today and is projected to be sound far into the future. The line about social security going bankrupt is just a scare tactic pushed by the privatisers.
It is understandable that people are amused that the Republicans have nominated a presidential candidate who cannot remember how many homes he owns, but the future of social security should be a more important issue in the campaign. McCain will be able to count on a warm place to sleep at night, even if he can never figure out how many homes he owns. The same will not be true for tens of millions of retirees if they allow McCain to carry through with his plans to privatise social security.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.