Citizen Leaders Say Bush Social Security Plan Would Lead To Benefit Cuts, Higher Retirement Age

Leaders of senior citizen, youth, labor and other citizen groups challenge George W. Bush to show how “principles” outlined today could avoid benefit cuts, retirement age hikes.

Washington DC– At a press briefing following the speech of Republican presidential candidate George W. Bush, leaders representing a diverse coalition of America’s largest citizen groups challenged the Texas governor to provide the details for his Social Security privatization scheme. Lacking further clarification, the groups’ leaders said they can only conclude that the Bush plan would “cut guaranteed benefits, and increase the retirement age for future retirees.”  

The coalition of citizen groups is demanding that all candidates for Federal office explain to the voters where they stand on the future of Social Security and Medicare.   Some members of the group are promoting a Pledge to Protect Social Security which enables candidates in upcoming elections to promise to oppose privatizing Social Security, to support for measures to lower poverty rates among elderly women, and to oppose turning Medicare into a privatized voucher system. Vice President Al Gore is expected to the sign the pledge sometime this week.

Noting that Bush would divert Social Security tax revenues to create private investment accounts, representatives of the coalition demanded to know how Bush would fill the drain that such a diversion would create in the Social Security trust funds. “Gov. Bush doesn’t want to go into the details, but practically the only way he can do it is to cut benefits and raise the retirement age,” said Roger Hickey, Co-director of the Campaign for America’s Future and organizer of the coalition. Hickey added that, “The other privatization plans we have examined contain massive cuts in benefits and increases in the retirement age.”

“We want to know where Governor Bush stands on increases in the retirement age, cuts in benefits and cuts in cost of living adjustments. The American people deserve to know – with exact detail – what Bush would do before, and not after, the election”Hickey added.

Speakers at today’s press conference included:  

Roger Hickey, Co-director, Campaign for America’s Future, Director, Sign the Pledge Campaign; Richard Trumka, Secretary-Treasurer, AFL-CIO; George Kourpias, President, National Council of Senior Citizens; William Spriggs, Director of the Washington Office, National Urban League; Hans Riemer, Director, 2030 Center; Martha Burk, Chair, National Council of Women’s Organizations; Eric Rodriguez, National Council of La Raza; Rev. Dr. Paul Sherry, Former President, United Church of Christ; Justin Dart, Founder, Justice for All

The groups expressed an array of concerns about privatization. Below are a brief outline of some of the issues raised by coalition leaders as well as a chart illustrating that Social Security privatization plans that detail the implications of their privatized accounts include large benefit cuts, increases in the retirement age and cuts in the annual cost-of-living adjustments.

What’s Wrong With Privatization

If any Social Security tax dollars are diverted out of the system and into individual accounts the projected long-term shortfall in the program would be worsened. Current tax dollars will pay for current and future benefits. Without those dollars, Social Security will run short. The attached graph illustrates how diverting tax dollars into individual accounts increases the projected shortfall in Social Security. A new study by the Center on Budget and Policy Priorities affirms that, “individual accounts funded by diverting current Social Security revenue make Social Security’s financial problems more serious.”

Gov. Bush has not proposed something new. Instead he has allied himself with the architects of reform proposals that would be a disaster to beneficiaries and their families.  As the attached chart [see page 4] illustrates, typical privatization plans contain massive cuts in benefits, increases in the retirement age and cuts in annual cost of living adjustments – some even contain tax hikes.   These plans are not something new. They have been proposed in the past but rejected because they are at odds with the concerns and desires of the public.

One third of Social Security beneficiaries are not retired, but receive benefits because of disability or survivorship. Privatization plans typically include deep cuts in benefits for these populations. These families can not expect that income from an individual account would aid them. Disability often comes early in life and lasts for many decades. These families need a guarantee like that provided by Social Security.

Individual accounts do not offer a higher rate of return. Stock market returns might be higher, but once the cost of the accounts is included the arithmetic flips the other way. Social Security has higher rates of returns than a privatized system. This is true using high or low stock returns and administrative costs. It may seem counter intuitive, but a privatized system would be bested by Social Security.

Individual accounts would be a boon to Gov. Bush’s campaign contributors, but very costly to America’s working families who would pay hefty administrative fees. According to the Center for Responsive Politics, Gov. Bush has raised over $12 million from the financial services sector. If Social Security is privatized as suggested by Bush, this sector would reap profits in the billions of dollars. A 1 percent administrative charge will consume 20 percent of the value of a worker’s account over a 40 year work life. These fees add up to big profits for Wall Street, but they are the equivalent of a hefty tax on workers.

Individual accounts would not make up for the benefits cut in order to fund them. Because of the cost of establishing accounts, they do not offer a higher rate of return. Arithmetically, it would take over 40 years for accounts to maximize their potential. But even then, under the best of conditions including high stock returns and low administrative costs the accounts would fall short of providing the benefits promised under current law.  

1. The one third of Social Security beneficiaries who are Americans with disabilities, survivors and their families would have their benefits cut but could not expect any income from an account which is designed strictly to provide retirement income.

2. For average and low-wage workers their accounts would never grow sufficiently to provide an income stream high enough to replace Social Security benefits cut in order to fund them. Social Security relies on modest redistribution to aid these workers.   The accounts in most reform proposals would have no redistribution at all.

3. Administrative costs would consume large portions of each worker’s individual accounts. According to the Center on Budget and Policy Priorities, in Great Britain these fees typically consumed over 40 percent of a worker’s individual account contributions and earnings.

4. Authoritative new research suggests that stock market returns over the next 40+ years will be lower than in the past. This cripples any reform proposal that relies on the stock market. The Employee Benefits Research Institute has new research that suggests that the Bush plan is likely to fail under optimal or sub-optimal conditions.

Average and low-income workers, people of color and women would be most harmed if Social Security is privatized.  Social Security has been successful in part because it targets these populations with a progressive benefit formula and life-long inflation adjusted benefits. Individual accounts do not have a progressive formula or an annual cost of living adjustment and they last only as long as the account balance lasts. This is why America’s largest citizen groups have joined together to oppose privatization.

Social Security works. It provides a guaranteed stream of assured basic income during retirement, disability or survivorship. There is no fiscal threat to Social Security benefits until the year 2037 and even after then tax revenue will be sufficient to pay about 70% of benefits indefinitely. The greatest threat to the program comes from proposals like those supported by Governor Bush.

George W. Bush Dodges Implications of Social Security Privatization

Typical Plans Contain Large Cuts in Benefits, Hikes in Retirement Age

George W. Bush has claimed that his plan to save Social Security would both fund individual accounts and hold beneficiaries harmless. However this contrasts with the details of other privatization plans that Bush has praised. It is arithmetically impossible to hold beneficiaries harmless while diverting Social Security tax dollars into individual accounts. Current tax dollars pay for current benefits. Diverting those tax dollars out of the system forces cuts in benefits – cuts that are not replaced by income from an individual account.

The chart below illustrates that Social Security privatization plans that detail the implications of their privatized accounts include large benefit cuts, increases in the retirement age and cuts in annual cost-of-living-adjustments. Bush has not specified which types of cuts he supports or how high he would raise the retirement age. The American public deserves to know what their benefits would look like under a President Bush before, and not after, the election. George W. Bush’s support for privatization suggests that Social Security benefits would be drastically cut and the retirement age increased if he is elected.

 

Normal Retirement Age

Cuts in Benefits

Cuts in COLA

Tax Rate

Tax Cap

Individual Accounts

The Budget

Moynihan-Kerrey Plan

68 in 2023 and gradually increases to 70 in 2073

25-30% cut in guaranteed benefits*

Reduces COLA 1% below inflation

(CPI – 1)

Cuts rate in near term and increases to 13.4% over time.

Return to historical 90% of earnings level.

2% Voluntary Carved out of Social Security

No transfer but would diminish surplus or increase deficit.

Gregg-Breaux-Stenholm-Kolbe Plan

70 in 2029 then index to life expectancy

72+ in 2073

25-35% cut in guaranteed benefits*

Reduces COLA 0.5% below inflation

(CPI – 0.5)

No Change

No Change

2% Mandatory Carved out of Social Security

Transfers 0.5% of payroll and would diminish surplus or increase deficit.

Gramlich Advisory Council Plan

67 in 2011 then index to life expectancy

70 in 2073

25-35% cut in guaranteed benefits*

No Change in Current Law

Increase rate to 14%

No Change

1.6% Mandatory new tax only for accounts

No transfer but would diminish surplus or increase deficit.

Weaver-Schieber Advisory Council Plan

Same as Gramlich but also increases early age

45-50% cut in median guaranteed benefits

No Change in Current Law

Increase rate to 13.92% and new budget deficits

No Change

5% Mandatory Carved out of Social Security and New Tax

No transfer but would diminish surplus or increase deficit.

George W. Bush

Unspecified but a necessary result of privatization.

Unspecified but a necessary result of privatization.

Unspecified but a necessary result of privatization.

Unspecified but a necessary result of privatization.

Unspecified but a necessary result of privatization.

Diverts unspecified amount of Social Security tax dollars into accounts.

Diversion of Social Security taxes would diminish surplus or increase deficit.

 

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