>Angling For 1935: Privatize Social Security

>In the words of Senate candidate Sharron Angle (NV): “Social Security and its attendant Medicare are broken and bankrupt systems because we, as voting citizens, have allowed congress to transform these systems from insurance programs to and [sic] entitlement programs.”

And thus we have the mythology of the right wing encapsulated in a single sentence. (1) The underlying assumption is that Social Security and Medicare have been transformed from some benign original intent into an “entitlement” for everyone. (2) Social Security is broken and bankrupt. (3) Medicare is broken and bankrupt. (4) Therefore, the syllogism goes, if they are broken and bankrupt they ought to be abolished. For the moment, we’ll leave the Medicare discussion for another day.

Semantics for the Logically Challenged

The fact is that Social Security was never enacted as a retirement program. As has been asserted time and again herein, Social Security is a safety net program providing minimal benefits for retired people in order to prevent widespread poverty among the elderly and disabled population of our country.

From the SSA Mission Statement: “The OASI and DI programs, commonly referred to as Social Security, provide a comprehensive package of protection against the loss of earnings due to retirement, disability and death. Monthly cash benefits are financed through payroll taxes paid by workers and their employers and by self-employed people. Social Security is intended to replace a portion of these lost earnings, but people are encouraged to supplement Social Security with savings, pensions, investments and other insurance.” [SSA pdf] Note: The program (entitlement) is to replace A PORTION of lost income. However, there’s nothing to prevent the right wing attempting to turn “entitlement” into a pejorative term.

Yes, as American citizens, we are entitled to contribute a portion of our earnings into a trust fund from which we derive benefits in case of retirement, disability, or the death of a wage earner such that we are prevented from falling into abject poverty. The program was always an entitlement program, it didn’t change into one, and nothing has changed in the basic mission since 1934. These were never “insurance” programs in the first place.

Also, as noted before, these contributions constitute a huge block of funds which have been eyed with increasing interest by Wall Street investment houses. “The privatization of Social Security has been a mainstay of the investment interests since retirement accounts of various forms have become the next large target for Wall Street. The amount of money available for Wall Street investment houses has surged at various points in time and the Streeters are looking for the next pot of gold. They once looked to the creation of money market accounts as a profitable revenue stream, and those were – and still are – profitable, but they don’t represent a source of “new money.” [DB]

The radical right can accomplish the bidding of the corporate masters by playing two cards: (a) rendering “entitlement” a pejorative rather than descriptive term; and, (b) privatizing the Social Security system so that “new money” can flow into the coffers of Wall Street and the mega-banks. The problem for the radical right here isn’t that the Social Security Administration is broken or bankrupt — but that the Social Security Administration is handling funds the banks would like to be managing themselves — with all the attendant fees, commissions, and bonuses.

If It’s Broke Don’t Fix It

Little would do more to warm the cockles of whatever heart Wall Street might possess than for the funds managed by the Social Security Administration to be at hand for the bankers and investment houses. Therefore, we hear, with absolute regularity each campaign season, from the right wing about the bankruptcy, real, imagined, inflated, or projected, of the Social Security program.

President George W. Bush inserted his proposal for privatizing Social Security in his 2005 State of the Union message to Congress. He asserted that Social Security would be bankrupt by 2042. We need to be careful with this projection because he could have used the Congressional Budget Office estimated projection, but he didn’t because that one was less pessimistic. [FactCheck]

If we accept the depletion argument for a moment, we need to ask if privatization would really have a “net-neutral” effect on federal budgeting. The answer isn’t what most right wing privatization advocates want to hear: “And that “net neutral effect” is just over the long term, 75 years or more. In the shorter term, creation of private accounts would require heavy federal borrowing to finance the payment of benefits to current retirees while some portion of payroll taxes is being diverted to workers’ private accounts. The administration projects it will borrow $754 billion (including interest) through 2015 to finance the initial phase-in of the accounts, and much more thereafter. The liberal Center on Budget and Policy Priorities — which opposes Bush’s proposal — projected that $4.5 trillion (with a “t”) would be required to finance the first 20 years of the accounts after they start to be phased in in 2009.” [FactCheck] (emphasis added) $754 billion, or $4.5 trillion — either would add to the very same federal deficit spending conservatives say they want to avoid. In this case, the Bush Plan, would have been a cure worse in fiscal terms than the projected problem it sought to address.

If It Ain’t Broke, What Is It?

The answer to that question depends entirely upon the respondent to the inquiry, and that respondent’s placement on the political spectrum. An article from Pensions & Investments in 2009 summarizes the process brought to bear in determining the actuarial status of the program:

“Social Security’s politically appointed trustees — none an actuary and most conservative — set the actuarial assumptions used for making the long-term (75-year) cost projections. This effectively empowers them to decide (not Social Security’s actuaries) whether there is a long-term deficit (or surplus) each year.

The deficit, as calculated by the Social Security administration, is a 75-year projection of the difference between the present value of all future benefits and the sum of current assets and the present value of all future income. This difference is then divided by the present value of future taxable wages to get the deficit expressed as a percentage of future taxable wages. For example, a 2% deficit means the contribution rate would have to be raised 1% for each worker and employer.”

All one would have to do to massage the numbers so that a higher deficit is projected would be to undervalue the program assets. Corporate and union pension plan consultant David Langer’s study of the valuation of Social Security assets found that, indeed, the program assets had been undervalued by as much as 20% during the 1990s. [PIOnline]

Even if we accept the pessimistic assumptions of the Social Security Trustees, [report summary] the 75 year projection (assuming the assets are properly valued) doesn’t call for a declaration of bankruptcy anywhere on the horizon. The Trustees Report says: “Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16 percent increase in the payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate reduction in benefits of 13 percent or some combination of the two. Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement.”

In other words, taking one of the most pessimistic projections available, and one that has historically undervalued the underlying assets in the divisor, the program would be viable for the next 75 years with a maximum 3.6% increase in the payroll contributions. If we hew to the happy prospect that the end of this Great Recession will be an increasing number of people employed and contributing to the Trust Fund then the 3.6% might be even lower.

Let’s Review

What candidate Angle is proposing is a solution in search of a problem. The solution the Club for Growth and other advocates for Wall Street are proposing is the privatization of Social Security, the benefits accruing to the investment institutions; with the attendant and necessary transition costs to be borne by American taxpayers.

The Social Security program is now, and has always been, an entitlement program to reduce the impact of earnings losses by death of a prime wage earner in the family, or retirement, or disability. Nothing has changed except the attempt by conservatives to hiss ‘entitlement’ as if this were some form of scatological term.

The Social Security program is not bankrupt now, nor by the most pessimistic projections will it be until 2042, and even then a modest increase in payroll contributions would sustain the program for its next 75 years in operation. Professional actuaries warn against using “infinite horizon” projections as misleading and essentially uninformative. [FactCheck]

What we have in candidate Angle’s policy statement from June 2010 is a clear indication of a nominee asserting the interests of Wall Street, using questionable actuarial projections upon which to base her statements of presumed need; and, offering little more than the same rhetoric that has been used since 1976 [Time] to substantiate her policy position.