Illinois Democrats Resist Social Security Privatization

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The Republicans and the Democrats are battling it out over Social Security. While everyone agrees Social Security must be reformed, Democrats deny there is a crisis, as alleged by President George W. Bush.

The President’s Pitch
President Bush has said that Social Security faces a $10 trillion unfunded obligation to beneficiaries. Trustees of the Social Security program have projected that by 2018 the program will owe more in annual benefits than the revenues generated by the payroll tax. They also say the program will be bankrupt by 2042.

In the 1950s, there were about sixteen workers paying for every Social Security beneficiary. Today there are about three, and eventually there will only be two workers per beneficiary, according to the President.

“These changes signal a looming danger,” he said during a recent radio speech on the topic.

Most women did not work outside the home when the Social Security Administration was established, and the average life expectancy for American workers was less than 60 years.

Today, more women are working and most Americans live longer and need longer retirements, according to Democrats and Republicans alike.

To address these problems, the President has been talking about partially privatizing the program by allowing younger workers to voluntarily divert part of their Social Security payroll tax into the stock market, bonds and other private investments.

Critics of the President’s plan have said that his proposal to reform Social Security will add to the current deficit, harm middle-class and low-income workers and will cut guaranteed benefits for future retirees. Democrats have expressed agreement with Republicans who have said there is a need to reform the Social Security system, but not to the extreme of partially privatizing the federal program.

Democrats’ Public Opposition
The Democrats argue that the President’s declaration of the severity of Social Security’s problems is highly exaggerated.

Some critics have even said the whole idea of privatization is a big hustle to enrich the wealthy. U.S. Rep. Rahm Emanuel (D-IL), a former Chicago Housing Authority board member, wrote in a commentary published in Crain’s Chicago Business magazine in February 2005 that the President’s privatization plan would be a “crapshoot.”

Another Democratic congressional leader went as far as to suggest that the privatization plan was a radical scheme that would “drain funds from Social Security.”“

There is no imminent crisis facing Social Security and it is not going bankrupt, no matter how many times Bush tries to paint that grim picture,” U.S. Rep. Jan Schakowsky (D-IL) declared to dozens of seniors, college students and people with disabilities at a town hall meeting on Social Security privatization in February of this year.

“Social Security will pay full benefits for the next forty to fifty years and almost 80 percent of all benefits after that. Instead of a radical privatization scheme, we have time to make adjustments to strengthen and guarantee Social Security for all generations.”

The congresswoman also said that Bush’ plan would cut benefits by 46 percent and that private accounts would cost $5 trillion, increasing the federal government’s already record high deficit.

Bush has also publicly stated that under partial privatization, a person will make more money, have total control of directing their retirement investments, and be able to pass on these investments to their heirs.

But the nation’s largest group of labor unions disputed the President’s statements.

According to AFL-CIO data provided at the town hall meeting, most Social Security investments “cannot be passed on to heirs” nor will a person have control over their own money because “Politicians will pick Wall Street firms to control your investment accounts.” This is a process, they said, “corrupted by politics.”

At the town hall meeting, the newly elected U.S. Senator, Barack Obama (D-IL) proposed tax credits for workers, rolling back the inheritance tax and automatically enrolling workers into 401(k) plans with the option to decline.

Newly elected U.S. Senator Barack Obama (D-IL) talking about his views on the President's privatization plan for Social Security, as congress- woman Jan Schakowsky (D-IL) takes notes during a town hall meeting in late February at Loyola University Water Campus. Photo by Mary C. Johns

“If they are automatically enrolled, statistics show that people end up saving more than they otherwise would have,” he declared.

To ensure the program’s solvency, Obama has two changes he wants to make. First, the government should raise the cap on payroll taxes. Currently, only the first $90,000 of income is taxed for Social Security. That means someone earning $100,000 annually would not have to pay the payroll tax for $10,000 of that salary. Increasing the amount of money that can be taxed under Social Security could ease the burden facing the program.

Second, the Senator suggested increasing the retirement age, a method he said was used in 1990 to address Social Security concerns.

U.S. Senator Dick Durbin (D-IL), newly elected as Senate Democratic minority Whip said at the town hall meeting that partially privatizing Social Security was risky and “a step in the wrong direction.”

The proposal, Durbin told the crowd, would “dramatically cut benefits for many seniors, pushing them into poverty.”

Other risks of privatization of Social Security funds pointed out at the meeting included a retiree outliving their private account balance. Health costs, bad luck or misjudgment with the investment could drain a lifetime of saving. Another risk was the threat that the returns go up or down depending on the market, and sometimes markets crash. Additionally, there are fees to manage the private accounts, which could cut into the account balance.

The People Speak Out
Furthermore, there will be a tax on the private accounts that is paid out of a person’s remaining Social Security benefits. This tax would amount to 70 percent or more of the private account, and the privatization tax is on top of the benefit cuts that will affect Social Security beneficiaries, according to the National Women’s Law Center (NWLC).

The disability and survivor benefits for families tend to be of the most help to minorities because of their higher rates of premature death,” according to NWLC data.

At the meeting, William McNary, president of US Action – a grassroots organization fighting for justice in health care and other areas – talked about how the benefits helped him personally after his wife died at a young age.

“When I was married to my first wife, she got cancer and died when she was 35 years old. And that left me a single parent with three young children to raise. And I was making not a lot of money because I was working for a non-for-profit organization, and I was wondering how I was going to make it.

“All of a sudden, a miraculous thing happened to me. Every month like clockwork, on the third of every month, I got a check from the Social Security system. What that check meant to me is that, it’ll allow my first wife Lula, even though she was not here, to keep a promise that we made to our children, that each and every one of them will be the second generation in our family to go to college. And because of Social Security, each and every one of them had the opportunity to go to college,” he said proudly.

McNary encouraged the politicians in attendance to guard against privatizing future benefits.

“Here’s an opportunity where we can begin to keep a promise from one generation to the next. Let’s this not be a promise that this generation breaks,” he declared.

Karen Tamley, from Access Living and a recently appointed disability commissioner for the city of Chicago, said Bush’s proposal to privatize Social Security is potentially disastrous for people with disabilities and those who may become disabled.

“This is our safety net,” Tamley declared. “Disability benefits are vital to workers. A 20-year-old worker today has a thirty percent chance of obtaining a disability before retirement age. So, you need to understand that this proposal will not just affect recipients of disability benefits now, but millions of Americans who are now in the working rolls,” Tamley said.

Jack Marco, who attended the meeting, was against the idea of partially privatizing Social Security benefits in the stock market because he said people already are losing money investing in it.

“People in the best of circumstances today, who have pensions and have been putting some money aside for savings, had it disappear in three years in the stock market.

“That is because, what happened to the stock market in three years, 2000, 2001, 2002 the stock market lost about 50 percent of its value,” he said.

Hal Gullett, president of the Illinois Alliance of Retired Americans, said privatization concerns those like him over 65 who care about their children’s benefits.

“Those of us who depend on Social Security’s lifetime guaranteed benefits, want our children and grandchildren to have those same benefits,” said Gullet. “President Bush and the other privatizers are not representing the interest of American families,” he proclaimed.

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