By Lindsay McLaughlin
ILWU Legislative Director
During the 2004 Presidential election campaign, George W. Bush refused to speak truthfully about Social Security privatization. After his alleged victory over Senator John Kerry, he is moving quickly to destroy a Social Security system that has worked remarkably well since 1935. During the campaign, Bush promised that there would be no pain, only gain in forcing younger workers to gamble on the stock market for their retirement needs. He promised that current beneficiaries would not be affected by the scheme. He promised that he wanted “private accounts” for the benefit of workers, not for his friends on Wall Street. He was lying.
Bush has convinced the Republican leaders of the House and Senate that they must move quickly on Social Security privatization in 2005 before the opposition is mobilized and people realize they are being sold a bill of goods. The administration plans to present a bill to Congress in late February or early March. In the interim, Bush has instructed his aides to tell the American people repeatedly that Social Security is in a state of crisis and that we either need a massive overhaul or we will lose the system. Again, he is lying.
According to the Social Security actuaries, the trust funds currently carry enough reserves to pay full benefits to all who are eligible through 2042. After 2042 the trust funds will still have enough in revenue to pay approximately 75 percent of benefits. What are needed are minor adjustments to the system, not a complete demolition of a traditional system that has worked and provided real security to senior citizens, disabled workers, widows and orphans since 1935.
Prior to the enactment of Social Security, people usually worked as long as their bodies and minds allowed them to. Only the rich or seniors with families to take care of them could retire in dignity. If a worker was too old or disabled to work and did not have family to rely on, they were relegated to the poorhouses. Children of deceased workers were often sent to orphanages.
The Washington Post reported Jan. 4, 2005 that the “Bush Admini-stration will propose changing the formula that sets initial Social Security benefit levels, cutting promised benefits by almost one-third.” Many Social Security beneficiaries on fixed incomes are currently facing difficult choices given the high cost of food, gas and particularly prescription drugs. Now, Bush’s secret plan to take one-third of their Social Security check from them has been unearthed.
Under this leaked proposal, the first year benefits for beneficiaries would be calculated using inflation rates rather than the rise in wages over a worker’s life. Because wages tend to rise considerably faster than inflation, the new formula would stunt the growth of benefits, slowly at first, but more quickly by the middle of the century. The administration is telling younger workers that they will more than make up the difference in the cuts to their Social Security payment by diverting a portion of their Social Security taxes into private accounts. Banking on the stock market is a precarious position for anyone who hopes to have a secure, stabile retirement plan.
THE RICH GET RICHER…
Bush’s privatization scheme will cost more than Social Security over the long term. And Wall Street barons and insurance companies want the profits from administering private accounts. Social Security spends one percent of its money on administration. Administrative costs for private investment companies range between 12 and 14 percent, according to the American Council of Life Insurers. Under Chile’s privatized retirement system, investment companies are charging fees of 15 to 20 percent.
Many workers believe they are impervious to making wrong decisions in the stock market and they will always make money. Not true. Since 1956 there have been 10 major downturns in the stock market, during which stock prices have tumbled by 20 percent or more for months and even years. Starting in 1973, for example, stock prices, as measured by Standard and Poor’s 500 Index, tumbled by 48 percent before they finally bottomed out nearly two years later. The stock market did not reach its January 1973 level again for more than seven years.
Stock market declines as big as the one in 1973 and 1974 would have a catastrophic impact on retirement income security under a system in which personal retirement accounts replaced Social Security. Assuming the amounts set aside in personal accounts were fully invested in the stock market, two workers with identical work histories, wages and retirement account contributions could see their retirement nest eggs vary by more than 50 percent, depending on whether they had the good luck to retire in 1970 or the bad luck to retire in 1975.
When George W. Bush became president, the stock market took a dramatic dive and has just recently started to recover. In 2000-2001, many workers saw their 401(k) plans lose half their value. Many workers had to postpone their retirement because they had counted on a healthy 401(k) plan to strengthen their retirement security.
Suppose the stock market crashes only twice a century. Most people will live into their seventies, eighties or nineties. The odds are good that most workers will see one big crash. Retire-ment accounts tied into the stock market would be devastating to the country’s retirees and disabled workers.
Under the Bush’s hand-picked commission’s plan, one-third of workers’ contributions to Social Security would be diverted from the trust funds into private accounts. The trust funds would lose almost $2 trillion in the first 10 years alone. So significantly does this diversion hurt the trust funds that the date Social Security would be unable to pay full benefits would be moved up (from 2042 to 2021). How does that fix the long term solvency of Social Security? It doesn’t.
Bush’s plan actually creates a crisis in the system that does not exist today. In fact, in order to give a boost to Wall Street, Bush is banking on the fact that you will believe his lies that the system is in crisis and rally to support his ill-conceived scheme.
Social Security works for workers
Social Security is one of the most successful government programs in U.S. history. Since its creation in 1935, it has played a crucial role in making sure that income to a family continues even when a worker retires, dies or becomes disabled. To stay strong, Social Security will need to retain the principles that make it successful and to undertake modest, responsible changes. Bush has teamed up with right-wing demagogues and profiteers to foster a sense of crisis in the system for the sole purpose of destroying the traditional system for a private, profit-making enterprise that will assuredly create social instability.
Bush and his allies ignore essential facts, including that Social Security provides disability and survivor benefits for workers and their families; that individual investments produce risks and volatility; and that only Social Security guarantees adequate lifelong income for all working Americans.
Nearly three in 10 workers will become severely disabled, either physically or mentally, and unable to work for some period before retirement. About 7 million disabled American workers and dependents receive benefits from Social Security today. The benefits go not only to disabled workers, but to their spouses and children. The benefits give peace of mind to a family struggling with a disability. Social Security benefits will replace up to two-thirds of a worker’s earnings throughout the disability, until retirement age if necessary. If a worker dies, Social Security will pay the survivors slightly more than four-fifths of his or her earnings so that a family devastated by the death of a member will not have to worry about impoverishment too.
Social Security is a lifeline to 30 million retired workers. For most Americans, savings and pensions are not the key to a decent retirement. The key is Social Security. Social Security is particularly important to women. Three out of four women rely on Social Security for half or more of their retirement income. One of four relies on Social Security for all here income. Without Social Security almost half of people 65 and older would live in poverty.
Retirement experts often talk about a three-legged stool: Social Security, pensions and income from savings. Recently, courts have allowed corporations in bankruptcy or reorganization proceedings to withdraw from their pension obligations under collective bargaining agreements. The Pension Benefit Guarantee Corporation (PBGC), the federal agency that is supposed to insure pensions, itself is in financial trouble. Workers have great difficulty in this country saving because wages have stagnated for so long and the cost of health care and other essential needs spirals out of control. Social Security is the most stable of the stool’s legs because it provides the retirement income guaranteed to stay stable even if the stock market drops. Why would we want to create another wobbly leg on a stool?
JUST SAY ”NO!”
Recent news reports say that Bush and his cronies are making a lot of noise that they touched the third rail of politics, Social Security, and survived. They think this gives them the mandate to go in, change a working program, siphon profits off to their friends in Wall Street, and stick it to hard-working Americans once again. It’s up to YOU to tell him this is not going to happen. Expect a major fight early this year. The ILWU and other unions must mobilize and let our elected officials know that NO pass will be given for helping Bush rob America’s seniors. We must fight this battle, before America is changed forever.
Please send a letter to your Sena-tors and member of Congress today and demand that they oppose any measure that privatizes Social Securi-ty. I would like a copy of your correspondence so that we can keep track of the communication going to Congress.
Your members of Congress can be reached at the following address:
The Honorable _____________
U.S. House of Representatives
Washington, D.C. 20515
The Honorable ___________
United States Senate
Washington, D.C. 20510
The address of the Washington Office:
Lindsay McLaughlin
Legislative Director
ILWU
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
