A 2005 Item: Social Security Privatization
Drutman, Lee, Multinational Monitor
AMONG PRESIDENT BUSH'S BIGGEST campaign promises in 2000 was a plan to privatize Social Security. Although a sluggish stock market has kept it as just a promise, Social Security privatization remains high on the President's priority list.
"It is a 2005 item," says Michael Tanner, director of the project on Social Security at the Cato Institute, a libertarian think tank and champion of Social Security privatization. "We expect the President to raise the issue as the campaign goes forward. I think the feeling is that once the election is over, in terms of domestic priorities, this is number one."
In his 2003 State of the Union Address, for example, Bush said, "As we continue to work together to keep Social Security strong and reliable, we must offer younger workers a chance to invest in retirement accounts that they will control and they will own."
This is exactly what the financial institutions that have donated significant sums of money to both of Bush's presidential campaigns want to hear. While anti-government ideologues like Tanner may advocate for Social Security privatization because they simply don't like entitlement programs, big financial institutions like Social Security privatization for simpler reasons. More private investment spells more lucrative commission and account management fees for financial conglomerates.
"We are talking tens of billions of dollars a year in fees and commissions," says Dean Baker, co-director of the Center for Economic and Policy Research, a Washington, D.C.-based nonprofit that opposes Social Security privatization. "Privatization just drains money away for the financial sector."
Baker notes that countries that have privatized their retirement security systems, such as Chile and Great Britain, have found that management costs run about 15 to 20 percent of the total retirement savings. By comparison, the operating cost of the current U.S. system is just 6/10th of 1 percent.
Though champions of Social Security privatization claim that the Social Security system is facing an impending collapse, the Social Security program is actually running a surplus, with more money coming in from taxes than being paid out in benefits. Using very conservative assumptions, Social Security trustees expect this surplus to grow until 2018 and for the current system to be able to pay full benefits until 2042. Hardly the makings of a crisis, says Baker.
But since the impetus to privatize Social Security depends on an assumption that the Social Security system is unsustainable, supporters of privatization have a tendency to dramatize the situation. "Fiscal problems with Social Security threaten to swamp everything else," argues Tanner.
For example, a 2002 Bush Treasury Department study argues that Social Security and Medicare are running a $44 trillion deficit. But a closer look shows that only 16 percent of that deficit is actually from Social Security and 62 percent of that deficit will come after 2077. …