Will Social Security Be There For My Family?

Selling Social Security Reform
Congressman Dave Weldon On Social Security Reform

During the Congressional spring break, Congressman Weldon (R, District 15) gave two speeches in Brevard county, Florida about reforming Social Security, one at Brevard Community College (BBC) in Cocoa and the other at the Florida Institute of Technology (FIT). "Where are the students?" he asked when he first arrived to give his presentation at BBC. There was a small crowd in the meeting room. Most people in attendance were middle age or older. One of the GOP(Republican) strategies was to try to gather support for Social Security Reform from the youth vote.

The Republic Strategy memo says in part:

"Key Recommendations? "Personalization" not "privatization": Personalization suggests increased personal ownership and control. Privatization connotes the total corporate takeover of Social Security?

One of the Powerpoint slides showed that, in 1950, there were 16 workers paying into Social Security for every person receiving benefits. Today, slightly more than 3 workers pay into Social Security for every person receiving benefits. By the time today's young workers retire, there will be only 2 workers to support each person on Social Security. This slide was followed by one which displays the Social Security System paying out more than it takes in by about 2018. However the slides did not highlight the fact that 1.7 trillion has been borrowed from the Social Security Trust fund causing the deficit.

During this part of his presentation, Congressman Weldon quipped that one solution to the Social Security crisis is that, "If you have not started a family yet, I encourage you to have many children" as a way to ensure more workers per retiree. "If the Social Security fund had not been 'raided', we would have a $3.7 trillion dollar surplus, not a deficit of this amount, in 2018, based on what baby boomers have paid," according to economist Allen W. Smith. "They have prepaid the cost of their own retirement, in addition to paying the cost of the generation that preceded them." Since 1982, the federal government has been borrowing from Social Security Trust Fund by using interest-bearing IOU's backed by full faith and credit of the government. Both Republican and Democratic controlled Congresses have spent more than $1.5 trillion in Social Security surpluses on other government programs.

Congressman Weldon also stressed that the solution to the problem is Personal Retirement Accounts with 50% in the markets and 50% in bonds to help reduce risk. And that President Bush has said "everything is on the table." He also said, "Private accounts have a higher rate of return. Social Security only returns 1.2% at present." He said that this was "a better solution than ones offered by the Democrats, who want to raise taxes." One slide showed a chart with Social Security tax increases over the years.

Questions were taken from the audience only after they were written on index cards and submitted to his aide to read.

One attendee wrote that Social Security tax increases had not been very high and that a small tax increase would be the easiest way to solve the problem. Her statement was not read by the Congressman's Aide.

Also, when asked during the question and answer period about the problem with the Social Security system being caused by the fact that Congress has borrowed from the Social Security Trust Fund, Congressman Weldon restated that the problem was due to declining births and workers. When a man in attendance shouted out, "Is there a plan to pay back the Trust Fund?", he did not respond.

Other questions to Congressman Weldon focused around the uncertainty of the private stock market versus the current system, and concerns that there would be a market downturn.

When asked "Would you support a system like the FDIC to insure or guarantee retirement benefits for people who use private retirement accounts?", Congressman Weldon said, "Private Accounts would be voluntary. I don't oppose some sort of guarantee, but I'm not sure how that could ever be set up." Private accounts would work like the Federal Thrift Funds.

When asked "Why didn't Congress act in the late 1990's when Senator Moynihan (D) and Senator Simpson(R) pointed out the problem of the Trust fund being depleted---one of the things they recommended was cutting cost of living increases, do you support that?" He said, "Like President Bush said, everything is on the table. We will look at all the options, including cost of living increases and raising the age of retirement.

Social Security Crisis: How Did We Get Here?

Social Security, which is funded by the payroll taxes (6.2 % contributed by the employee and 6.2% by the employer). At the end of 2003, Social Security has a $138 billion surplus, with more money being paid into the system than is needed to pay out for current benefits. The total Social Security trust fund assets are $1.4 trillion dollars.

During a Republican roadshow to 'sell' Social Security reform, Congressman Dave Weldon, FL (District 15), showed the audience slides that blame the dropping birth rate and, ultimate reduction in number of workers, as the main cause for the Social Security shortfall. At one point he quipped that one solution to the Social Security crisis is that, "If you have not started a family yet, I encourage you to have many children" as a way to ensure more workers per retiree.

"If the Social Security fund had not been 'raided', we would have a $3.7 trillion dollar surplus, not a deficit os this amount, in 2018 based on what baby boomers have paid," according to economist Allen W. Smith. "They have prepaid the cost of their own retirement, in addition to paying the cost of the generation that preceded them." Since 1982, the federal government has been borrowing from Social Security Trust fund by using interest bearing IOU's backed by full faith and credit of the government. Both Republican and Democratic controlled Congresses have spent more than $1.5 trillion in Social Security surpluses on other government programs.

By 2018, the Social Security system will have to pay out more than is being paid into the system. According to this year's Social Security Trustees report, there will be enough in OIU's backed by the government to pay full benefits until 2042. The Congressional Budget Office estimates full benefits can be paid until 2052. No matter which date one uses to determine when full benefits can no longer be paid, both Republican and Democrats agree after that time there will be enough current workers to pay into the system to pay out about 75 percent of promised benefits. This means that today's 30-year-old worker will face a 25% benefit cut when he or she reaches normal retirement age. This amount could be less is we have another economic boom and more taxes get paid into the Social Security system than anticipated.

So, the real issue is that these IOU's from the government would have to be paid back to keep Social Security afloat and the government is attempting to find a way not to have pay back Social Security. The claim is that it would draw needed federal funds away from other programs. Additionally, the current national deficit caused by increased spending by the Bush Administration in Iraq has placed the U.S. in a precarious situation .

Looking back at the "lock box" arguments during the 2000 election between President Bush and Al Gore, one can now see that the government knew this issue had to be dealt with for some time. In 1983, a commission headed by Alan Greenspan looked at the Social Security system and determined it would need more resources to pay for the Baby Boomers' retirement. So payroll taxes were raised and some benefits were reduced. The Bipartisan Commission on Entitlements and Tax Policy that was convened by President Clinton,. found that, if borrowing from the Social Security Trust fund continued at its current rate, the debt would eventually swallow up the entirety of the federal budget. In the early 1990's, the late U.S. Senator Daniel Patrick Moynihan called attention to the fact that the 1983 fix was not going to solve the problem. He pointed out that the surplus payroll taxes collected were being spent as fast as they were being collected, and that the assets in the Social Security Trust Fund were nothing more than a bunch of IOU's the government was writing to itself as it was spending the money.

In a radio address to the nation on February 3, 2001, President Bush said, "My plan will keep all Social Security money in the Social Security system where it belongs." And, in his February 27, 2001 State of the Union address, Bush said, "To make sure the retirement savings of America's seniors are not diverted in any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone." At the same time that he was saying this, the Republican controlled Congress and the President borrowed and spent $509 billion in Social Security Trust funds.

How do We Get Out of This Mess?

Think Tanks Proposals:

Progressive: One proposed by Massachusetts Institute of Technology economist Peter A. Diamond and Brookings Institution economist Peter R. Orszag, proposes to solve the problem by balancing benefit and revenue adjustments. Increase revenue by:

• Adding all new state and local government workers thus expanding the Social Security tax base to cover the 25 percent of government workers who are exempt. These workers are currently part of state and local public retirement plans.
• Raise cap on wages by collecting a 35 tax on income over $105,000. Currently no Social Security taxes are taken out of income over $90,000

• Raise Tax rate from current 12.4% to 14.2% by 2055

Decrease expenses by:

Benefits would be cut, on a scale that starts taking 0.6% away for a worker 45 years old, up to reduction of 8.6 % for a future retiree who is now 25.

Opponents say that Small businesses can afford to pay more in Social Security taxes and that rasing the taxes on income over $90,000 is not fair because no one could live long enough to get back in retirement benefits all of the money paid into the Social Security System

Conservative: The Heritage Foundation model (President Bush's Plan)sets up a system where Personal Retirement Accounts replace the current Social Security Taxes. The Money is invested in the stock market in various funds which would produce fixed annual return of 4.9 percent minus administrative costs, for a total return of 4.6 percent. The heritage foundation plan gives workers two options on how to manage their personal accounts when they reach retirement.

One:

• Part of a Personal Retirement Account used at retirement time to purchase an annuity that will fund a portion of monthly benefits.

• The remainder stays in the personal account, where it can continue to compound and grow and keep this money in the PRA, perhaps to pass it on to a child or grandchild. Or the retiree could choose to tap into the nest egg and use the money for his or her own needs.

Two:

• A retiree can choose to maximize his or her monthly retirement benefits by using his or her PRA to buy the largest annuity possible. Workers choosing this option forgo a nest egg and completely cash out their PRAs. This option allows a worker to receive the greatest monthly benefit during retirement.

• The ultimate private-account plan belongs to Peter J. Ferrara, where personal accounts would average 6.4 percentage points of the 12.4 percent Social Security tax, considerably larger than Heritage Foundations proposed 4 %. Ferrara's plan would offset contributions to voluntary private accounts with equal cuts to workers' base Social Security benefit, what workers currently would receive as a monthly, guaranteed check.. Ferrara's proposes that accounts would be so big that participating workers beginning their careers this year could expect to have no basic Social Security benefit left by retirement, according to a Social Security actuarial analysis. The accounts would cost almost $7 trillion over 75 years., almost twice Social Security's cash deficit over that period.

Opponents say that counting on the stock market to provide social Security benefits is too risky, they point to the bursting of the Bubble in the 1990's as proof and ask how would someone who had their retire all in private account fare if they were at retirement age the year the "Bubble Burst".

President Bush has in addition the Heritage Foundation plan incorporates, " Indexing Social Security Benefits. The plan would reduces benefits to the highest income and increase benefits for the low income.

Other proposals:

Raising the normal retirement age by one year for each calendar decade and changing early-retirement age of 62. Are suggestions from Dartmouth economics professor Andrew Samwick . he also say that putting more money into the Social Security trust fund would only tempt Congress to use the surplus money for other things.

Put the government on a payback to Social Security Plan and place the social Security Trust fund in a "Lock Box" is one Democratic proposal

Other economist argue that the real solution is to just fix the economy and increase revenues to the social Security System

Federal Subsidies. Establish a permanent federal subsidy so the shortfall is covered with money appropriated from the federal budget.

Invest the Social Security Trust Fund for a higher return so it accumulates capital on its own. to close as much of the shortfall as possible.

To reduce the risk of Personal Retirement Accounts use the Social Security Trust fund as something like the FDIC bank account insurance to protect loss in personal retirement accounts.

Reducing the cost of living Increase for Current and future retirees's.

What you can do:

Get Involved by emailing and calling your U.S. Representative and U.S. Senators. U.S. Capitol switch board number is (202) 224-3121. Let them know what solutions you wan and which you do not want! It's your future-protect it!