Aug 29, 1998
In Washington, Democrats and Republicans alike are in general agreement that Social Security must be "reformed." For years, there has been a lot of talk about an impending Social Security crisis: supposedly if something is not done soon, there will be nothing left of the entire Social Security fund when the so- called Baby Boom generation begins to retire over the next 15 to 20 years.
The sign that Washington was going to tackle the Social Security issue came in a January 1997 report issued by the Advisory Council on Social Security set up by Donna Shalala, the Secretary of Health and Human Services. Although the council's 13 members representing business, government and labor came to three separate conclusions, they all agreed on the necessity of a "reform" that would require at least some Social Security assets to be invested in the stock market. Currently, by law, the Social Security surplus must be invested in U.S. Treasury bonds.
The major difference inside the panel was over who would control the money funneled into Wall Street. Seven of the members took the logic furthest and concluded that Wall Street's financial houses should control much of the money, through compulsory individual retirement accounts. The other six, led by former Commissioner of Social Security Robert Ball, came out in favor of having the government control the pool of Social Security money invested in Wall Street, with the government guaranteeing the money, in the event of major losses. This group included three representatives from the AFL-CIO: Gerald Shea, the assistant to AFL-CIO President John Sweeney; George Kourpias, President of the International Association of Machinists; and Gloria T. Johnson, of the International Union of Electronic Workers and head of the Coalition of Labor Union Women.
However, the very fact that even the union apparatuses agreed that reforms, including some cuts in benefits, were necessary, and that they were willing to support the idea that at least some of the Social Security surplus should be handed over to Wall Street, helped shift the political scales in a manner very similar to the previous political maneuvering over welfare reform. On the one side stand the hard-line Republicans, who for years have had their knives out, wanting to carve up Social Security, openly advocating full privatization. On the other side are the liberal Democrats, having pretended to guard Social Security from the evil designs of the Republicans, and now reluctantly claiming that, alas, in order to "save" Social Security, they must reform it, after all.
Since then, there has been the usual maneuvering and competition between Democrats and Republicans over who would take the credit – or the blame – for the process of reform. In February, President Clinton announced that the White House was getting behind a big push to get a Social Security reform package passed within a year, but Clinton also proposed that major negotiations to shape a bill not start until December 1998 – conveniently right after the November elections.
But no matter how things turn out in the short run, some drastic changes of Social Security are in the cards that the politicians of both parties are reading.
Given all this talk about a Social Security crisis, most people would logically think that the program is running a deficit, or even on the verge of running out of money. Nothing could be further from the truth. In fact, Social Security continues to take in money at a much faster rate than it pays it out. Last year, Social Security ran a surplus of 88.6 billion dollars, bringing its total surplus to 655.5 billion dollars. This surplus itself was 171% of its annual expenditures. In the next ten years, the government's own experts say this surplus is expected to increase to 1.8 trillion dollars. By the year 2020, they expect it to reach 3.78 trillion dollars.
So, looking at these enormous surpluses – trillions and trillions of dollars stretching into the next millennium – on what basis do the politicians and all their experts claim a crisis? With a straight face, they predict that the fund is going to run out of money anyway...in the year 2038, that is, 40 years from now.
Of course, given the anarchic nature of the capitalist economy, these kinds of predictions are worthless. Economists cannot even agree over what the economy did last year. And their estimates over what the economy will do in the near future are regularly way off base. In July, Clinton announced that Social Security ran a bigger surplus than expected last year, putting off "doomsday," when there will be no surplus, another two years. They couldn't see what was happening last year when they had their noses right in the middle of it, yet they claim they can foresee what the economy will do in 20, 50 or 75 years? Sure!
Yet, it is exactly these kinds of pseudo-scientific predictions that are being used to justify feeding the Social Security fund to the big financial houses of Wall Street.
Of course, what is really driving Social Security reform is not the supposed need to "save" it, but the desire of the big Wall Street investment firms to get their hands on a potential bonanza worth not just billions, but eventually trillions of dollars. At the very least, Social Security reform promises to open up the door to this. How much Wall Street gets, how much control it has, depends on the form that the reform takes.
The trade unions are backing proposals that would leave the Social Security fund intact. It would just shift a little less than half of the surplus from the form of government bonds to the stock of private companies. The decisions of how this money would be used would still be in the hands of the government.
But even under this plan, the investment of this Social Security money will first of all benefit big speculators. If the stock market rises, this continual stream of new money will feed the speculative bubble. If the stock market collapses, the flow of retirement money will make it easier for these speculators to pull their irons from the fire.
The other proposals not only hand the money to Wall Street, they also change the form under which Social Security is paid out. No longer would you have a precise pension which you would continue to draw for as long as you live. Instead, each person would have his or her own "individual retirement account."
Of course, they hope to delude people with all these pictures of people making a lot of money on Wall Street these days. What they forget to tell us is you have to have a lot of money to invest in order to make money.
If Social Security is broken up into separate private accounts, that would be the end of a program in which those currently working take the responsibility for the pensions of those retired, through their tax contributions. The social responsibility that each generation should have for the preceding generation would be broken.
In its place, each person would have to find the way to save every penny needed for his or her own retirement. And how much is that? Investment advisors say that in order to have a comfortable retirement we should save at least half a million or a million dollars...per person.
In other words, we each would have to have a high enough income throughout our working lives so as to be able to save a half a million dollars. But that means that the bosses would all have to decide to grant massive wage increases immediately to allow the level of savings.
Better not plan on it!
Of course, we might manage anyway ... IF we are lucky enough to work a very high paying job. And IF we didn't have to pay for the education of our children. And IF we didn't have any long term layoffs or illness that forced us to draw down our savings. And of course, high inflation cannot eat into our nest egg. And we certainly can't get sick once we retire.
Come to think about it, maybe the best thing we can do is manage not to live very long after retirement!
The big financial houses claim that private companies can handle peoples' money much more efficiently than do big government bureaucracies. But if this were true, then what private companies charge to handle to set up private accounts would be much less than the administrative costs of the government. In fact, the opposite is true. Social Security costs less than one percent of benefits paid out per year to administer. According to the Council of Life Insurance, a group representing the insurance industry, administrative costs for private insurance run between 12 and 14% of the benefits annually paid out. That is, these so-called more efficient private insurance companies are charging at least a dozen times more than Social Security is to handle our money.
What accounts for this difference are, of course, the profits taken by the capitalists out of the insurance companies.
If the financial houses get their hands on these millions of new individual retirement accounts through Social Security reform, they will charge a premium for their services. They will tack on all their usual fees: brokerage, administrative, and hidden fees. And they will make their usual substantial profit. They are not philanthropic institutions, after all.
The privatization plans that we are told are supposed to "save" Social Security money, actually will be substantially more expensive.
No wonder the politicians are claiming that they will have to cut retirees' benefits. They intend on handing a substantial amount of our money over to the financial industry, in order to boost profits.
The first kind of cut is the reduction of the annual cost of living increases that serve as something of a protection against inflation. COLA had already been reduced slightly two years ago, when the Labor Department modified how it calculated the rate of inflation so as to make Social Security's COLA formula produce less of an increase. Congress is now expected to make a much bigger reduction in the Social Security COLA. While these cuts may amount to only a few dollars in the first years, they will add up to substantial amounts of money over decades. Social Security benefits will be cut incrementally and, what is most important for the politicians, invisibly every single year.
Another proposed cut will raise the age at which people can begin to draw full benefits from 67 to 70 years. (In 1983, Congress had already enacted legislation that phased in an increase from 65 to 67 over a 22-year period beginning in the year 2000.) They also want to hike the age of early retirement from 62 to 65 years.
Politicians justify this proposal by claiming that people are living longer, and therefore costing the Social Security system more money by drawing retirement benefits for a longer time. In other words, they are saying that the elderly should continue to work another five years, instead of, as they imply, living off the fat of the land on those overly generous Social Security benefits that society can no longer afford.
Behind this assumption is the idea that over the years our society has stood still, or else gotten poorer. But in fact, it hasn't, it has grown much richer. We are producing much, much more. These same politicians even tell us that technology has taken huge strides. Our productivity has grown. And we see how many goods are being produced. So, it is patently obvious that our society has the wealth to let people retire not only at age 65, but much earlier. At the same time, our society could afford to pay much higher benefits.
All the cuts that these politicians are proposing are not due to what we can afford, but to the functioning of capitalist society, whose driving force is the enrichment of a few at the expense of the majority. Politicians can say anything they want. But the reality is that every time they cut the hard-earned retirement benefits that the majority have worked for their entire lives, there is a privileged minority, the capitalists, who grow richer. This minority pockets the money.
For the vast majority, the functioning of the capitalist system is making it much more difficult to retire. Not only are Social Security benefits being cut, so are all the other retirement benefits people earn. Today, a smaller percentage of the workforce is receiving full pensions than 20 years ago. This is not only due to downsizing, with a lower-paid work force, earning fewer if any benefits, doing more of the work. It is also due to full-time workers being shifted from full pensions that pay guaranteed benefits to limited pensions whose benefits could run out, as well as to individual retirement accounts, like 401(k)'s and profit sharing plans that are also not guaranteed. More than ever, workers depend on Social Security for their retirement – just at the moment the politicians are proposing to cut Social Security.
Currently the average annual Social Security benefits are minuscule, slightly more than $7,800 a year. That means that a big chunk of the working class collects less than $7,800 dollars in benefits per year – and, for many, that is practically all they get.
Any reduction in benefits will be devastating. As benefits are cut, older people will be forced either to stay in the job market for added years, or return to the job market. Some of what this would mean is spelled out in a recent report that the GAO (General Accounting Office) prepared for Congress on the effects of raising the retirement age.
As the GAO states, older production workers "... are more likely to have musculoskeletal problems, respiratory diseases, diabetes, and emotional disorder than are white-collar workers. For example, blue-collar workers are 58% more likely to have arthritis, 42% more likely to have chronic lung disease, and 25% more likely to have emotional disorders... When all blue collar occupations are grouped together, blue collar workers are 80% more likely to experience pain that affects their ability to perform their jobs..."
Coupled with these health problems, it is more difficult for workers to find work, and when they do, they earn much less: "Older blue-collar workers with health problems have lower earnings and are in less demand for their labor. Blue collar work is often physically demanding, and current or potential employers may foresee a risk of a worker's compensation claim or increased health care costs from older employees. This reduced labor demand means these workers may accumulate less wealth, which makes it difficult for them to afford to retire even if they are not physically capable of working more years."
This is the human reality of what Social Security reforms will mean for workers. Government agencies dutifully report it. Those who run the government politely thank them for their reports. And then they all turn around and cynically push Social Security reform as in the best interests of everyone concerned.
Workers are headed for a higher retirement age and shrinking benefits, which will result in greater unemployment, lower earnings, greater pain, worse health. And this will weigh on the entire working class. Either the elderly will become a part of the army of the desperate underemployed, ready to work for minimum wage, exerting a downward pressure on wages in general. Or else they will become more of a burden on relatives, when they can little afford it because they themselves are often facing greater hardship.
Social Security was introduced in 1935 as a part of the reforms that a vast and militant workers' movement imposed on the U.S. ruling class. Certainly, just the fact that the government began a program recognizing that people had the social right to retire was a gain. But this program still reflected the interests of the bourgeoisie, and it was an advantage for the capitalists themselves insofar as the socialization of pensions cost each individual corporation significantly less than if they had themselves paid their workers enough on which to retire.
But this new program also provided another benefit for the bourgeoisie, or more exactly, for its state: that is, the Social Security tax was a source of revenue for the government. Certainly, politicians claimed that the Social Security tax paid by the employee and employer was safely tucked away in a trust fund, that by law no one could touch it. But in reality, the money paid into Social Security went straight into the U.S. Treasury. No retirement benefits were even paid out for its first five years. As tax revenue was collected, a surplus began to build. The Social Security administration used that surplus to buy U.S. Treasury bonds and bills, that is to loan the government money to cover part of the deficit the government ran up in its regular budget. This spared the government the expense of borrowing money in the open market.
From the beginning, Social Security has been used for this purpose.Throughout the 1950s and 60s, the government boosted the Social Security tax, increasing it from 1.5% in 1950 to 3.62% in 1965, that is, more than doubling it in 15 years. The Social Security tax rate continued raising, reaching 5.85% by 1973. This steadily increasing tax fed steadily increasing annual surpluses, which by 1967 reached 2.5 billion dollars. This surplus was used to cover part of the government's regular budget deficit, which had reached 15.7 billion dollars by that same year, with the escalation of the Viet Nam War. It was the largest deficit since World War II, and prospects were that the deficit would be twice that size the next year. In the years from 1965 to 1972, the Social Security surplus amounted to 16.7 billion dollars.
To partially hide the maneuver which was being carried out with Social Security funds, President Lyndon Johnson in January 1968 proposed what he called the "unified budget." This changed the way the budget was reported. Social Security and other trust fund tax dollars (highway, airports, unemployment, Medicare and federal employees' retirement) were no longer treated as separate from the rest of the federal budget. Their revenues were rolled in with the other revenues. They were still being used to underwrite part of the government's budget deficit, but now it was no longer so apparent. And moreover, the size of the government's deficit was, at least, on paper, reduced. As the deficit ballooned first because of the Viet Nam War, and later as the federal government tried to bail out the corporations during the economic crisis that began in the 1970s, the revenues from the trust funds, of which Social Security is by far the largest, helped underwrite that deficit.
As the government's reliance on Social Security money has grown, so have Social Security tax rates, which have steadily been increased. As opposed to telling us what Social Security taxes were being used for, the politicians began this story that the tax hikes were necessary so as to save Social Security from crisis. From 1977 to 1990, they hiked the tax rate nine times, going from 5.85% in 1977 to 7.65% in 1990 – an increase of 31%.
And look what that accomplished for them: at the height of the deficit, 1992, the government reported that the federal budget deficit hit 292 billion dollars, a record. In fact the deficit was much higher than that, 386 billion dollars. It was reduced because Social Security chipped in its 50 billion dollar surplus. The other trust funds chipped in another 46 billion dollars. Thus, the trust fund surpluses reduced the deficit by about 25%.
In his last State of the Union address, Clinton proclaimed that he would use the first surplus in the federal budget in 30 years to help lower Social Security's deficit. This, according to Clinton, "was only just." It would demonstrate the government's commitment to future retirees. Everybody then applauded. This declaration had to be one of Clinton's better lies. Because every assertion Clinton made was an outright lie. Social Security is NOT running a deficit, as Clinton said. It is running a surplus, almost 90 billion dollars last year. And the rest of the federal budget is NOT running a surplus, as Clinton said. If it weren't for the money that Social Security lends to the federal government, the federal operating budget would show a deficit of at least 70 billion dollars, and Clinton would not be able to proclaim that he had balanced the budget.
And what do the beneficiaries of the Social Security fund get in return for the money the government takes? The government simply prints up IOU's. Of course, the government also claims to pay interest on the money that it borrows. But that too is in the form only of more IOU's. This money, obviously, is never going to be repaid.
Thus, over the years, Social Security has become more and more of just one of the taxes used to pay for the military, subsidies to the corporations and interest to the bankers. Social Security has become another tool of state intervention to bail out the bourgeoisie.
With the move of Social Security money from investing in government bonds, as it is doing now, to Wall Street equities, as is being proposed, the politicians are simply eliminating the governmental middleman in putting the workers' money directly into the bosses' pockets.
Make no mistake about it: the government designed Social Security as a tax almost entirely for the working class.
First of all, the Social Security tax is paid on the first dollar earned; there are no exemptions. Second, Social Security is not a graduated tax, according to income. There is only one rate. Third, there is a cap on how much income the tax is paid on. Currently this cap is $68,400. Income over $68,400 is not subject to Social Security tax. This cap, which rises a few hundred dollars per year, just so happens to correspond to the maximum that a better paid skilled worker can earn, working plenty of overtime.
Thus, a worker's full income is taxed to the very last drop, while rich people pay Social Security taxes on only a tiny part of their income. Most of the actual money gained by rich people, including capital gains, dividends, interest, that is, profits from speculation on things like the stock market, are not subject to Social Security taxes at all.
Thus, a worker who makes $68,400 pays the same amount in Social Security taxes as an executive who makes 10 million dollars. In percentage terms, the worker pays at a rate of 6.2% of his wages. (The total Social Security tax is 7.65%. Of that figure, 6.2% goes for Old-Age, Survivors and Disability Insurance, which provides the monthly pension benefits. 1.45% goes to Medicare.) While the executive, who made 10 million dollars, paid at a rate of just 0.04%. Looked at another way, if the worker paid for Social Security at the same rate as the executive, the worker's weekly deduction would come to about 50 cents.
The Social Security money that the government uses to subsidize the bourgeoisie is almost entirely the workers' money.
With Social Security reform, the workers will have their benefits cut. A growing proportion of people, who have worked their whole lives and helped build up the wealth of the society, are being put at risk that the last years of their lives will be plagued by destitution and want, condemned to work until they die.
Among tribal peoples who lived under unusually harsh conditions, like the Eskimos near the Arctic Circle, when the elderly became too enfeebled by age, disease and injury and no longer able to contribute, they left the tribe to die alone, that is to starve, drown or freeze to death. Horrifying maybe, but it was understandable. With the material conditions then existing, it was the only way the rest of the tribe could survive.
Perhaps we have not yet got back there. But how far away from it are we?
There are already plenty of elderly sleeping in the gutter, who are condemned to wash and bathe in park drinking fountains, and collect cans in order to eat. And there are also plenty who are forced to take their own lives because they have been deprived of the material means to continue living.
The "reform" of Social Security will only add to the number of elderly living in misery.
We live in a society of abundance. And yet it cannot even provide the basic necessities for a growing number of people, including all those people who have spent their whole lives working, and thus contributing to the advancement of the society.
This system, taking us backward, is a system in an advanced state of decay. Everything is organized to put as much wealth as possible, in the form of profits, into the hands of a tiny privileged layer of society, the capitalists.
This capitalist system, which cannot even meet all our vital needs, rests on exploitation and misery. It needs to be thrown out.
Certainly, we shouldn't let things go backwards, and get any worse. We should fight to protect what we have. But fighting back just to keep what we have now is not enough. It doesn't solve the basic underlying problems which lead us into this situation.
It is by overthrowing the capitalist system that the population will be able to enjoy the enormous productive potential which has already been produced by the labor of the working class.