FOCUS: Bush’s Plan For Social Insecurity

President Bush is right. Social Security needs to be saved, but not because of any major internal problems. Rather, this vital and proven governmental program is jeopardized by the ideologically-driven changes Bush wants to make to it. Social Security must be saved from the President and others, who would dismantle a proven and successful program because they reflexively oppose any increased role of government in our lives. Bush’s pitch sounds convincing, but partially privatizing Social Security is the first step towards phasing it out. The promise of a comfortable and secure retirement guaranteed by a government program may not fit into conservative ideology, but it is something the majority of Americans want. As college students, our retirement seems far away, but we must not forget that Social Security has been the most successful domestic program since its creation. If we do not act to protect Social Security now, the retirement security of our generation will be in danger.

Bush’s firm desire to privatize Social Security is driven by ideology, not reality. This same ideology prompted Republican presidential candidates Alf Landon to describe Social Security as “a cruel hoax” in 1936 and Barry Goldwater to advocate the repeal of Social Security in 1964. In 1978, a young Bush ran for Congress claiming that Social Security would be broke by 1988 unless private accounts were established. Unfortunately for the would-be Congressman, he was wrong. Unfortunately for all college-aged Americans, Bush is trying to phase out Social Security once again.

People are right to believe in Social Security: the process of current workers financing the retirement of current retirees has been remarkably successful at ensuring an adequate standard of living for seniors. Critics of the current system argue something like this: As the Baby Boomers retire, the ratio of working Americans to retirees will steadily decline, from about 3.3:1 today to about 2:1 in the upcoming decades. This will become an unbearable burden on Social Security. As a consequence, privatizers argue that we need to act now: to take advantage of the market, cut guaranteed benefits, and use higher growth rates to compensate so that retirees will receive roughly the same benefits.

There are plenty of holes in this reasoning, but let’s just consider a few. Most importantly, there is no crisis in Social Security. In the early 1980s, Congress made a series of adjustments to Social Security, raising both payroll taxes and the retirement age. Since then, Social Security has run a massive surplus, invested in a Trust Fund of iron clad Treasury bonds that will be tapped in 2018 when the Baby Boomers cause Social Security to run a deficit. Social Security actuaries predict that the Trust Fund will be adequate and will keep Social Security solvent far into the future.

Why, then, do we hear the alarms of a crisis in Social Security? The actuaries’ modeling techniques have grown increasingly cautious over the past few years, so much so that their “optimistic” projections have historically been more accurate than their “middle” projections. These “optimistic” projections show Social Security solvent as far into the future as projections can be made. But even if the “middle” projection proves to be accurate, there is no need to privatize Social Security. As Democrats and some Republicans have consistently pointed out, a modest correction in the formula for Social Security can overcome the deficits predicted, without the need for drastic structural change. Slightly raising the payroll tax, raising the cap on taxable income above $90,000, raising the retirement age, progressively indexing benefits, or a combination of any these will assure the program’s solvency. If the “middle” projection proves true, and Social Security is the Titanic heading towards an iceberg, we suggest changing course as soon as possible instead of sinking the ship preemptively and leaving every individual to swim to shore alone.

Diverting payroll taxes towards privatization without drastically cutting benefits to current retirees will only increase the gap between tax income and entitlements that the Trust Fund will eventually be called upon to cover. Simply put, our generation will not only lose the benefits of Social Security but will be forced to pay the cost of implementing a worse plan. As workers begin to divert their payroll taxes into private accounts, there will be substantially less government money available to fund pensions. This shortfall means that privatization will cost several trillion dollars to implement, in addition to whatever deficit Social Security already is projected to run. As young Americans, we are the ones who will end up paying off the debt that will inevitably accrue in financing this transition. We are in essence being asked to pay for two retirements—our own via private accounts, and that of our parents through the national debt.

There are some who would argue that we should privatize Social Security not because of solvency issues, but because private accounts are inherently superior to the current system. We believe that the massive transition costs outlined above are enough reason to reject this argument. But more importantly, privatization destroys the goal of Social Security: confidence in retirement. Even if the average worker would benefit from private accounts (which may or may not happen), there will be many, many workers whose private accounts would under perform, costing them thousands in retirement. Social Security is meant to be a guaranteed retirement foundation for all retirees, not a slick investment scheme, where every senior on the wrong side of the stock market’s bell curve is left to starve on the street. That was the situation Social Security was designed to remedy, and privatization would break that promise.

We are left with a false solution to a phony crisis being advanced because of a political ideology that is out of the mainstream. This scam would leave today’s college students holding the bill for a hugely ineffective program, and as a reward we would receive smaller retirement benefits and be exposed to more risk. Bush talks about promoting an “ownership society,” but most Americans want to live in a land of opportunity. From tax cuts for the rich to handouts for insurance and credit card companies, the ownership society is about ensconcing the rich and closing out opportunities for everyone else. The best way to promote opportunity is to strengthen tried and true social programs, not dismantle them.

Seth R. Flaxman ’08 lives in Wigglesworth Hall. Harlan M. Piper ’08 lives in Thayer Hall. Both are members-at-large of the Harvard College Democrats.