Younger workers and Social Security: Privatization of the program undermines their future
By Seth Sandronsky
Journal Contributing Writer
Apr 12, 2005, 23:02
These are tough
time for many younger workers in the U.S. Real wages, what they can actually
buy with their pay, are falling. The costs of gas, health care and shelter are
climbing. Student loans to attend college are fueling debt for younger workers.
age 20 to 24 got about 4 percent of the new jobs created in the year ended
March 2005 versus 42 percent for workers over age 55. Squeezed from many
directions, some younger workers fear that Social Security will not be around
for their retirements. The Bush administration is playing on that fear. It is
fed by some reporting in mass media.
A Washington Post
article said younger workers �have the most to gain� from George W. Bush�s plan
to create private accounts to fund Social Security (3�15�05). A Christian
Science Monitor article said a change to private accounts from the current
system of payroll taxes would �sweeten the system for younger workers� (3�3�05).
Both articles are
incorrect on private accounts for younger workers. How? The private accounts
invested in the stock market would pay, barely, for the administrative costs of
such investments. Thus there is no net gain for younger workers. For more
information, see the Accurate
For a preview of
retirement funded by the stock market, younger workers should look to workers
over age 55. They are flooding into the job market because their 401(k)
retirement plans in the stock market have dropped in value. That factor helps
explain why older workers took roughly half of the new jobs created in the U.S.
for the past year, says Dean Baker, co-director of the Center for Economic and
Policy Research in Washington, DC.
American workers have not always been so shaky. �Between 1979 and 1997, the
share of employees with defined benefit plans�meaning that the plan promised a
specific level of support�fell from 87 percent to 50 percent (The State of
Working America, 2002), writes Michael Perelman, author and economics professor
at CSU Chico. �Today, about 85 percent of private contributions are for defined
contribution plans in which individuals decide how much to contribute, how to
invest their assets in the plan, and how and when to withdraw money from the
Venti, and Wise). The level of support that the plan provides for
individual workers depends upon their success in investing. These plans appeal
to employers because they shift the risk onto the employee. Because
appreciation of stock prices helped to fund the defined benefit plans, the
collapse of the stock market bubble in 2000 accelerated the transition to the
defined contribution plans� (Manufacturing Discontent: The Trap of
Individualism in a Corporate Society, 2005).
can�t outlive their Social Security benefits. These benefits are their lifelong
source of income. By contrast, younger workers can certainly outlive the cash
built up in the private accounts that the Bush White House is pitching. When
their private accounts in the stock market run out of cash, younger workers
will have to seek other retirement income.
Why is there such a
difference between private accounts and Social Security? Social Security is a
program of social insurance. It is not an investment program. As such, Social
Security is funded by a payroll tax paid equally by employees and employers.
Workers contribute 6.2 percent of their wages to Social Security, with their
bosses making the same contribution). That payroll tax goes to current
recipients�retirees, the disabled and survivors. Social Security is a
pay-as-you-go system of social insurance.
Carving out private
accounts from the payroll tax would weaken Social Security, Comptroller General
David Walker told the House Ways and Means Committee on March 9. The private
accounts would suck funds from Social Security. Plus, private accounts would be
subject to the administrative costs of Wall St. financial firms, and the shaky
stock market. �Young people would likely face the largest benefit cuts from
privatization,� Baker adds.
Beginning in March,
President Bush, Vice President Cheney and Treasury Secretary John W. Snow have
been traveling the U.S. to tell people that the popular program faces a funding
crisis. They canvassed the nation from the Atlantic to the Pacific for 60 days
in 29 states to spread the idea of revamping Social Security with private
accounts as a way to save the program from bankruptcy.
"I think it is
clear that the solvency concern is taking root,� said Representative Jim Leach
of Iowa (New York Times, 4�3�05). It would have been helpful if this article
reported that Social Security is on sound financial ground to pay full benefits
through mid-century. That is the view of the Social Security trustees and the
Congressional Budget Office.
There is no Social
Security funding crisis. Its future bankruptcy is pure fiction. Government
programs do not run short of money. Think about it. Where is the shortage of
U.S. tax dollars for the Iraq occupation? When has the Pentagon held cookie
sales for a new weapons system due to a cash shortfall? The financing of Social
Security is a political�not an economic�issue.
The program has
from its birth in the mid-1930s been under attack by the U.S. upper class. For
them, the �crisis� of Social Security is that it protects working people from
living in poverty. Friedrich Hayek has a section on "The Crisis of Social
Security" in The Constitution of Liberty (1960). It lays out the privatization
program that U.S. workers face now, according to John Bellamy Foster, editor of
Climate change is a
crisis. Privatizing Social Security will cause a crisis for younger workers
when they retire. They don�t need that. It is in their class interests to fight
Bush�s privatization of Social Security.
Seth Sandronsky is a member of Sacramento Area
Peace Action and a co-editor with Because People Matter, Sacramento�s
progressive paper. He can be reached at: firstname.lastname@example.org.
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