Crib Sheet: Social Security

President Bush and his allies have launched a $35 million public relations effort to drum up support for their risky scheme to privatize Social Security. A central focus of the administration’s appeal has been young people – a group especially susceptible to the tantalizing notion of private accounts. But once you get past all the hype and scare, President Bush’s plan to privatize Social Security is a rip off. The administration’s proposal shifts all the risk, costs and cuts onto the backs of young workers. Here’s what you need to know:

Social Security faces a challenge not a crisis. Social Security will pay full benefits for the next 40 to 50 years. The amount of money needed to make Social Security solvent into the next century is less than what we’re spending each year fighting in Iraq. That amount is equal to about 25 percent of the revenue lost each year because of the president’s tax cuts. In other words, if we repeal some of the tax breaks given to the richest Americans since 2001, we could easily shore up Social Security.

Young people will shoulder more than $2 trillion in transition costs needed to create private accounts. This monumental amount does nothing to improve Social Security’s long term finances. The government has three ways it can pay for privatization: raising taxes, cutting government spending, or borrowing more. The president is unwilling to pay for his proposal by repealing tax cuts to the richest Americans – which would be more than enough to cover transition costs. And there’s no wiggle room in the budget for spending cuts because of a $450 billion deficit that’s already starving important federal programs. That leaves one option: more borrowing, which this younger generation will pay for with higher taxes and fewer government services.

When young people retire their benefits will be drastically cut. That’s because private accounts will be “carved out” of Social Security – money that was used to pay benefits, will instead be invested in the market. The President claims the gains from private accounts will more than make up for benefit cuts, but Congress’s own number cruncher – the Congressional Budget Office, headed by a Republican – determined otherwise. According to the CBO, today’s young workers would be better off if nothing is done to “fix” Social Security than under the President’s privatization plan.

Privatization replaces a guarantee with a gamble. Social Security does not pay the same outsized returns as private investments because it provides a guaranteed benefit. If young workers invest their payroll taxes in the market, they will no longer have that basic guarantee. The only thing easier than making money in the market is losing money in the market. And don’t forget, you have more than yourself to worry about. If you parent’s investments go south, they’ll have nothing to fall back on…except you. Do you really want your parents moving in with you?

For more information on why Social Security privatization is bad for you, check out these resources:

How to Talk to a Conservative About Social Security (If You Must), by Think Progress

Generational Warfare, By Ben Hubbard, Boston Globe, January 14, 2005.

Social Security Central, Columns, talking points, reports and backgrounders by the Center for American Progress

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