MOLLY IVINS Selling Out Social Security Let’s take as a given that our government is capable of doing profoundly dumb things. These are the people who brought you the Vietnam War, the S&L crisis, the $563 hammer, the $1200 toilet seat the “no man in the house” rule for welfare recipients, and the tobacco subsidy. Not to mention the entire civil defense program, under which we were to survive nuclear warfare by learning to duck and cover. Our government can be so dumb that many people now make a handsome living by promoting the notion that it’s a collection of boobs who can’t do anything right and shouldn’t be trusted to collect the garbage. To this end, now comes the Advisory Council on Social Security with a monumentally dumb idea: privatize Social Security by investing the Social Security Trust Fund in the stock market. The first question you want to ask about this ridiculous proposal i l s: Why? .The answer is: No good reason. Social Security is one of many government programs that actually work quite well, thank you. Since its start in 1935, Social Security has reduced poverty in old age to less than the average for all age groups. In addition to protecting the elderly, the program also helps middleaged workers who would otherwise have to support their aged parents. It also acts as a giant life-insurance pool, is completely portable and is not drained by commissions of salesmen or investment advisers. True, we are now approaching a demographic bump in the road that presents a long-term problem for the program. Because people are living longer and the baby boomers will start to retire in fifteen years, the ratio of workers to retirees will fall to a burdensome extent. According to the council, during the next seventy-five years, Social Security will be out of balance by 2.2 percent of taxable payroll. Balance will require increases in taxes, small reductions in benefits or some combination of both. Or, we could cut benefits to wealthy retirees \(Ross Perot will not age, or fix the Consumer Price Index, or slow ‘cost-of-living adjustments. As you see, we have a variety of choices here to resolve a not-terribly-pressing problemalthough the sooner solutions are implemented, the safer the system will be. As the economist Robert Kuttner puts it, “Conservatives on the panel have taken the need for moderate adjustment as the occasion for fundamental change.” Social Security now collects more in taxes than it pays out in benefits. The excessthe trust fundis invested in special U.S. Treasury bonds that paid an average of 7.6 percent last year. “Not a bad return for a no-risk portfolio,” noted financial writer Jane Bryant Quinn. The trust fund is expected to grow until around 2019, after which it will have to JUST BEFORE THIS BULL MARKET, STOCKS DECLINED 4 PERCENT A YEAR FOR TEN YEARS; HOW WOULD YOU LIKE TO WATCH THAT MUCH OF YOUR RETIREMENT SAVINGS EATEN AWAY JUST BEFORE YOU RETIRE? start cashing in its Treasury bonds. The revenues from the payroll tax alone would be enough to pay 75 percent of everyone’s Social Security benefits for the next seventy-five years. A 1.1 percent increase in payroll tax for employees and employers would make up the difference, costing the average worker $23.50 a month. Financial columnist John Crudele wrote, “If Social Security money is invested in the stock market, we can all kiss our retirements goodbye.” Crudele believes that the sale of billions of dollars of government bonds in order to invest in the stock market will cause interest rates to rise dramatically. “With the government having to pay higher interest rates on its bonds, the nation’s deficit will also climb significantly. When the deficit rises, investors’ faith in Washington’s ability to control its costs will erode and interest rates will go up some more….The economy slows and cor porate profits sink… an evil mix for the stock market.” Even assuming that this apocalyptic scenario does not play out, the risks of putting the trust fund into the stock market are still high. Because of the unprecedented bull market, we seem to have forgotten that markets do come down. Judged long-term, the stock market does not offer a great improvement in profits over bonds, and it certainly poses a far greater risk. Just before this bull market, stocks declined 4 percent a year for ten years; how would you like to watch that much of your retirement savings eaten away just before you retire? further problem is the conflict of interest posed by a system that puts the single most influential market force, the federal government, in the position of being the single largest investor. David Sanger of The New York Times asks: What if a president were advised that the cost of sending troops to secure peace on the Korean peninsula would undercut the returns that every American worker would see on his quarterly statements? So, who is in favor of this batty idea? Wall Street, of course, which is already collecting millions to promote and lobby for the change. Billions and billions of dollars suddenly flowing in would certainly fuel the stock market. If fund managers are permitted to skim just 1 percent in management feesSanger raises this possibility it would mean new Wall Street revenues of $10 billion to $40 billion a year. Keep that in mind when you see glossy printed ads touting this daffy notion or television ads giving you the hard sell on what a swell concept it is. Buyer, beware. Molly Ivins, a former Observer editor, is a columnist for the Fort Worth StarTelegram. THE TEXAS OBSERVER 19 FEBRUARY 14, 1997
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