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Social Security is financed through a regressive tax on wage earners. Over 20 years ago, this tax was increased so it would bring in far more than was needed to pay current benefits. The surplus was used by the federal government as a substitute for higher taxes on the wealthy. In exchange for paying the increased tax, workers received a promise of decent retirement benefits. Now President Bush wants to break that promise.
Social Security is the most nearly adequate and universal of American social programs, providing a majority of seniors with monthly stipends sufficient to protect them from degrading poverty in their final years.
The major defect with the system has always been the way it raises its money. Social Security is funded exclusively by a payroll tax, half of which comes from workers, the other half from their employers. Only wages up to a certain "ceiling" amount per year are subject to the tax. Because the Social Security tax exempts wages above the ceiling as well as all dividends, rents, interest and capital gains, low and moderate income workers pay a higher percentage of their total income toward that tax than highly paid workers and wealthy investors.
Congress raised the tax substantially in 1982 as part of a plan to save Social Security put together by a commission co-chaired by Alan Greenspan, the free marketeer who presently heads the Federal Reserve. Under this plan, for several decades the Social Security system would collect far more in payroll tax than it paid out in benefits. The surplus would earn interest as it was put into U.S. Treasury bonds (in other words, loaned to the government). Then, starting around 2018, Social Security would spend all the payroll tax it took in every year, along with amounts from its accumulated surplus, to cover the old-age needs of baby boomers.
The plan promised workers that, in exchange for paying a greater tax on their wages, they would receive decent benefits when they retired. Workers paid more so that the affluent could pay less; the federal government borrowed sums from Social Security that it would otherwise have had to obtain through higher taxes on wealth and income.
Now they want to break the pledge they made to America's working population. Greenspan foresees a financial crisis for the Social Security program, with revenues falling far short of pay-outs. He refuses to acknowledge that the government could avoid this shortfall by repealing the series of tax cuts he recently supported and using some of the hundreds of billions of dollars it would thereby receive to bolster Social Security. Instead, he calls for reducing pensions. George W. Bush is taking his advice.
Bush revels in his rhetoric about an ownership society and the glittering advantages of mass stock speculation. Behind the rhetoric is his objective of shrinking Americans' Social Security. The private investment accounts W has proposed conform to his anti-government ideology and provide a nice sop to his supporters in the financial industry, but they won't help with Social Security's alleged crisis. To prevent a future flood of red ink, he will propose trimming benefits.
Even Bush and Greenspan acknowledge that the government must pay present-day retirees and those close to retirement the benefits they have been counting on. But in their view younger Americans, including most baby boomers, should work longer and receive less from the Social Security program they pay into throughout their working lives.
Bush plans to use a large portion of his "political capital" to push for drastic changes in the Social Security system. He can be thwarted if we act now. (Much more will follow in the next issue.)
[Randy Silverman is former chair of the Berkeley Rent Stabilization Board. He last wrote on social security in Partisan No. 10.]
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