�This law represents a cornerstone in a structure
which is being built but is by no means completed�a structure intended to
lessen the force of possible future depressions, to act as a protection to
future administrations of the Government against the necessity of going deeply
into debt to furnish relief to the needy�a law to flatten out the peaks and
valleys of deflation and of inflation�in other words, a law that will take care
of human needs and at the same time provide for the United States an economic
structure of vastly greater soundness."�Franklin D. Roosevelt (August
George W. Bush has just launched an aggressive propaganda
campaign in his battle to destroy Social Security, the only compensation many
of us can ever expect to count upon when we are no longer able to work.
The elimination of Social Security threatens all of us, both
those who will be left without the means of survival in old age and those who
will have to support them. Is there anything we can do to stop this runaway
train before it jumps the tracks?
On August 14, 1935, in the midst of the Great Depression,
the American people entered into a contract with our government in which we
collectively bartered a percentage of our wages to pay for an insurance policy
ensuring that none of us become destitute when we are no longer able to work.
The Depression was brought on by the 1929 crash of the stock
market, when it suddenly lost 40 percent of its value and more than $26 billion
in wealth disappeared from our economy. It took 25 years for the market to
regain its value. In the meantime total wages fell by almost half, and millions
of workers were unemployed and without any income.
By 1935, over half of the elderly in America were dependent
on others for support, and although a majority of the states had some form of
old-age pensions, only 3 percent of the elderly received any benefits, which
averaged only 65 cents a day.
Social Security immediately began to take care of us, and
with the addition of disability insurance in 1954, Medicare in 1965, and
Supplemental Security Income (SSI) in 1972, we have contributed $4.5 trillion
from our wages and have received more than $4.1 trillion back in benefits.
We have kept our side of the bargain, and each time we
receive our paychecks most of us see that 6.2 percent of our wages has been
withheld and turned over to the Social Security Trust Fund. Our employer is
required by law to match our contribution with another 6.2 percent. Thus, were
it not for the Federal Insurance Contributions Act (FICA) taxes, we could
receive an additional 12.4 percent in our salary. However, our employers might
not be so generous in the absence of legal coercion, and we might not be so
faithful in putting aside the increase for hard times.
It has been a good bargain, a win-win situation. For the oversight
of our contributions, we only pay one-quarter of the amount paid by private
pension funds to their money managers. Overall, more than 99 percent of our
premiums go to benefits and less than one percent is spent on overhead.
Our trust funds have been wisely and conservatively invested
in the interest-bearing obligations of federal government bonds (as required by
law), which has benefited the overall operation of our government. While we may
have missed out a little bit on the booming stock market of the 1990s, we
didn�t see our trust funds reduced or wiped out by the current financial
Today, more than 90 percent of all employees and the
self-employed are covered by Social Security, and one in seven Americans, or
more than 44 million of us, are receiving a benefit. Most beneficiaries are
receiving a return on their contributions that is far greater than they would
have received if they had invested the same funds in the private financial
The Problem. All,
however, is not rosy. While a one-earner couple retiring in 1980 generated
Social Security benefits equal to a 7.7 percent (adjusted for inflation) return
on their investment, the same couple retiring in 2010 may only earn a 3.6
return. The reduction in return is due to the aging of the population (the Baby
Boomers), the increase in benefits, and the requirement that the trust funds be
So, why doesn�t the government just sell bonds at a low
interest rate and invest the proceeds in the stock market? The reason is
because higher returns are necessarily associated with higher risks, and if we
are to count on having money to retire on and to avoid being dependent upon
others, we have to minimize the risk of loss. This is why we have always wisely
invested our Social Security trust funds in very conservative interest-bearing
Since benefits are primarily paid out of current
contributions and since the population is aging, there is a predicted shortfall
of $3.5 trillion at some distant point in the future. However, there is a
present surplus, and, even using the president�s figures, there are sufficient
assets to pay 100 percent of benefits until 2042. Even then, without any
further increases, the fund could pay more than 70 percent of benefits for many
decades after that. Other estimates, including that of the Congressional Budget
Office, allow for sufficient existing reserves to pay full benefits through
2052, if not the 2080s.
Three solutions have been proposed to reform Social Security. We can raise
contributions, reduce benefits, or engage in a more risky investment strategy.
The current administration favors the last two options by calling for steep
reductions in future benefits; by allowing workers to gamble up to 4 percent of
their 6.2 percent FICA taxes with personal investments; and by trusting that
their loss of their Social Security benefits will be offset by the higher
returns they will receive from their investment wagers.
It is not difficult to understand why Bush is pursuing such
a risky plan. It frees his corporate constituency from having to match up to
four percent of the diverted funds; his Wall Street supporters will suck
millions from the private investment funds for their �management;� and
diversion is the first step in the neocon�s long term goal to eliminate Social
Security altogether. (The most radical members of Congress want to divert 6
percent of earnings, virtually the entire FICA tax, essentially eliminating
employers� contribution towards their workers� retirements. They hope that a 12
percent diversion of contributions would slash the amount of Social Security
Trust Funds available to purchase the bonds issued by the federal government to
finance its deficit spending and would result in substantial reductions in all
government benefits and programs.)
The evidence against Bush�s plan is abundant: (1) Since most
benefits are paid out of current contributions, the government will have to
borrow trillions of dollars over the next 40 year to replace the contributions
avoided by employers and those diverted by individuals to risky private
investments; (2) benefits for individuals will be reduced by the amount
diverted plus three percent above inflation, resulting in less money at
retirement for most individuals; and (3) retirees will have to use the bulk of
their private accounts to purchase lifetime annuities from the government, the
principal of which cannot be passed to their heirs.
Britain�s experience with privatization has resulted in the
fraudulent sale of badly designed retirement plans on false pretenses and
exorbitant fees being paid to managers, which have eaten up 20 to 30 percent of
the investments they controlled. Presently, at least 75 percent of those with
private investment accounts do not have sufficient savings to guarantee
There has been a similar experience in Chile (lauded by Bush
as a �great example� for emulation), where privatization has primarily
benefited the upper-income minority and has excluded one-third of the workforce,
including the poor and self-employed. Six Chilean pension administration
companies �manage� to earn profits of more than 50 percent per year on the
assets they �manage.� Half of all participants will be unable to fund even the
minimum pension of $100 per month. Is this what Bush really wants for us?
Perhaps so, but we don�t have to buy it.
Contributions to Protect Social Security. Should we increase our
contributions to ensure the long-term solvency of the current Social Security
system? One way to balance the Trust
Fund beyond 2042 (or 2052, or 2082) is to simply raise or eliminate the
annual cap on earnings, which is scheduled to increase to $90,000 in 2005.
Currently, because of the cap, lower- and middle-income
workers pay a higher FICA tax rate than those who earn over $90,000. Since only
83 percent of all wages paid are subject to social security taxes, elimination
of the cap would increase annual social security revenues 20 percent, or
roughly $100 billion per year, more than enough to take care of any future
Perhaps the law should be changed to establish the cap at
the president�s salary. Shouldn�t we all share the burden to �save� Social
Investment Plan. Other opportunities already exist for interested U.S.
workers who are willing to increase their contributions and to take some
additional risks, such as 401(k) plans and Investment Retirement Accounts
(IRAs). However, there is a way to extend the �ownership� of private retirement
plans in a way that is beneficial to society and is even more secure for
If allowed to vote in a National Policy Referendum, we might
decide to embark on an alternative personal investment plan as a supplement to
traditional Social Security, whereby employees make additional tax-free
contributions to personal accounts in a National Bond Fund that invests its
assets in the obligations of local and state governments, rather than the
Employers could agree to match Bond Fund contributions as a
job benefit; employees could take their accounts with them from job to job;
workers could negotiate the level of each subsequent employer�s contribution;
retirees could decide for themselves whether to invest their savings in a
lifetime annuity at retirement; or they could choose to spend their entire nest
egg as they please, or they could leave it to their heirs.
The stability of investments in state and local bonds would
require minimal management costs, increase the rate of returns, and would allow
the principal placed in personal accounts (which could be withdrawn at any time
to meet emergencies) to be guaranteed by the federal government just as it does
for bank deposits.
Bond Fund accounts could be established by parents at the
birth of their children and grow throughout an individual�s lifetime until they
choose to retire. There could be survivor benefits similar to those provided by
traditional Social Security, and the personal accounts could mature as early as
age 55, allowing workers to transition to other, and perhaps more interesting
America would benefit as a whole from an alternative
personal savings plan by having a readily available, domestic source of
investment funds to restore and improve its state and local infrastructure and
Many of us will never have the sophistication, discipline,
or excess capital to consistently make good investments in a personal
portfolio. For most workers, the bargain we made with our government back in
1935 remains the best deal we can hope for when we retire or should we become
disabled. We do not have to worry that our retirement or a serious accident
will coincide with an economic recession, when the stock market is in decline, or
that we will outlive the value of our private investments. Quite simply, we are
secure in our society.
Unquestionably, the lives of millions of American workers
and our families will be devastated in the future by the thoughtless and
selfish actions of our representatives if Bush succeeds in his cockamamie
attack on Social Security. It is dangerous to assume that they care more for us
than for their wealthy friends, corporate sponsors and Wall Street
conspirators, who are the only ones guaranteed to benefit from Bush�s nutty
scheme to privatize Social Security.
There is a great risk that our Congress, presently
controlled by the wealthy and large corporations, will enact changes by a
simple majority vote that will abrogate the contract we made with our
government 70 years ago and which we have faithfully kept. Undoubtedly, Bush
will happily sign off on the legislation. He and his family have accumulated a
substantial fortune during their years of public service, and he will never
have to worry about paying for food, shelter or health care.
We the people, the ones most affected, have the right to
directly vote on any risky gamble with our money and future well-being. No
other question is more amenable to a policy vote during a National Policy
Let us dream of a society in which we are able to prosper
and enjoy the full fruits of our labor. Let us dream of a society in which we
can retire in comfort and security without worrying about shelter, food and
medicine, or that we will become a burden on our families or communities. We
can make these dreams come true. We only have to trust that we collectively
have the common sense to make them happen.
The time has come for us to peacefully engage in a political evolution,
rather than a violent revolution. We must demand to vote in a National Policy
Referendum about our Social Security policy, and each of us must take a moment
to carefully write in the name of the person we select as president to carry
out the policies we decide upon.
John Cox is currently a senior prosecutor for the State Bar of California. As a
professional police officer he authored the Policy Manual of the Los Angeles
Police Department and the Role of the Police in America for a National Advisory
Commission during the Nixon administration. Acting as a
public interest, pro bono, attorney, he filed a class action lawsuit in 1979 on
behalf of every citizen of the United States petitioning the Supreme Court to
order the other two branches of the federal government to conduct a National
Policy Referendum; he investigated and successfully sued a group of radical
right-wing organizations in 1981 that deny the Holocaust; and he arranged in
1991 for the publication of the suppressed Dead Sea Scrolls. His recent book,
You�re Not Stupid! Get the Truth: A Brief on the Bush Presidency is reviewed at
and more information about a peaceful political evolution is at TheVoters.org.
He can be reached at U2Cox@msn.com.