[Congressional Record Volume 145, Number 39 (Thursday, March 11, 1999)]
[Extensions of Remarks]
[Pages E422-E423]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            SOCIAL SECURITY

                                 ______
                                 

                          HON. BERNARD SANDERS

                               of vermont

                    in the house of representatives

                        Thursday, March 11, 1999

  Mr. SANDERS. Mr. Speaker, I would like to call your attention to an 
article printed in the March edition of the Labor Party Press, and 
submit the article to the Congressional Record for my colleagues' 
benefit:

          [Labor Party Press, Volume 4, Number 2, March 1999]

           ``Don't Blow Away Social Security'' (PART 2 of 3)


             WHAT'S WRONG WITH PRIVATIZING SOCIAL SECURITY?

                    1. The stock market is volatile.

       The stock market goes up and up. And sometimes it goes down 
     and down. Even without an economic catastrophe, the stock 
     market's volatility would make our retirement income entirely 
     unpredictable. Dean Baker has noted that if the economy grows 
     as slowly as the Social Security trustees are predicting, 
     then the prognosis for the stock market isn't too rosy 
     either. Social Security barely covers seniors' expenses as it 
     is now.
       Former Congressional Budget Office director Robert 
     Reischauer has pointed out that if we had private Social 
     Security accounts back in 1969, a person retiring in that 
     year would have had a 60 percent larger payout upon 
     retirement than someone retiring seven years later, after the 
     market dipped. John Mueller, a former economic advisor to the 
     House Republicans, makes a similar observation. Since 1900, 
     he notes, there have been three 20-year periods in which 
     returns on the stock market fell to about zero. In between 
     were periods of positive returns. ``This meant that some 
     people earned a negative real return from investing in the 
     stock market, while others received a real pretax return as 
     high as 10 percent.'' For retirees, it would be the luck of 
     the draw.
       Under our current system, the government bears the risk of 
     economic downturn, and we're all promised a constant monthly 
     amount of retirement income. Under a privatized system, we 
     each individually bear the risk. Even the cleverest investor 
     will likely lose money in a major financial downturn. And not 
     all of us are so clever--or can afford to spend our time 
     playing amateur Wall Street trader.

  2. Shifting to a privatized system would require a hugely expensive 
                         period of transition.

       Say we begin establishing private Social Security accounts 
     for all of us Americans who are currently working and under 
     65. Who will generate funds to cover the current retirees? 
     You and me. Essentially, the next several generations of 
     Americans would have to pay twice--once into our own fund, 
     and again to sustain current retirees. According to one 
     estimate, full-scale privatization of Social Security would 
     require about $6.5 trillion in additional taxes over the next 
     seventy-two years. The Employee Benefits Research Institute 
     estimates that transition costs could amount to something 
     like 5 percent of the nation's Gross Domestic Product for the 
     next 40 years. By instituting privatization, we'd be starting 
     a Social Security crisis, not ending one.

            3. Maintaining private accounts will be costly.

       Many of us tend to think that any federal program must be 
     incredibly inefficient and bureaucratic. A Roper poll asked 
     Americans to estimate the administrative costs of Social 
     Security as a percentage of benefits. They guessed, on 
     average, 50 percent. The real answer is one percent. Only one 
     percent of the money that goes into Social Security is spent 
     on administration. By comparison, the administrative costs 
     for private insurance are about 13 percent of annual benefit 
     amounts.
       The main reason Social Security administration is so cheap 
     is that the whole fund is invested in one place, the U.S. 
     Treasury. Imagine the administrative cost of managing

[[Page E423]]

     millions of separate accounts invested in a myriad of stocks 
     and bonds. Much of the money would go to Wall Street 
     investment houses which is why they like the privatization 
     idea so much.
       In Chile, which privatized its retirement system in 1981, 
     people pay between 10 and 20 percent of their annual 
     retirement contribution just to maintain their account. The 
     stock market would have to perform spectacularly to make up 
     for that kind of expense.


    WHAT'S WRONG WITH INVESTING THE SOCIAL SECURITY FUND IN STOCKS?

       Clinton and others are advocating that part of the Social 
     Security system's extra money be invested in the stock market 
     instead of the Treasury, hoping that it would collect more 
     interest there. Because the money would still stay in one big 
     lump, the administrative costs wouldn't stack up the way they 
     would if everyone had their own account.
       But again, the stock market is volatile. There's no 
     guarantee that the gamble would pay off.
       Dean Baker and others also worry that investing the Social 
     Security Fund in the stock market just opens the door to 
     further privatization. ``I think it plays into the hands of 
     people who want individual accounts,'' he says. ``It 
     logically leads people to believe that there's a fortune to 
     be made in the stock market. And if there's a fortune to be 
     made, well then, let me get access to that as an individual. 
     But in fact, there isn't a fortune to be made, because 
     they've overestimated the returns.''
       As it happens, financial institutions hate this aspect of 
     Clinton's plan. If dollars are going to be invested in the 
     stock market, they want to get a cut. But that won't happen 
     if the government does the investing in one big lump. 
     Financial types have also complained about the ``danger'' of 
     having the government controlling such a big chunk of change 
     on Wall St.
       Because so much of the Social Security reform debate is 
     being driven by Wall Street, Baker believes this plan isn't 
     going anywhere. And he's glad.


          RAISING THE RETIREMENT AGE & OTHER ``POPULAR IDEAS''

       There are many other proposals afloat for ``saving'' Social 
     Security. There's Clinton's idea of setting up voluntary 
     ``Universal Savings Accounts'' outside the Social Security 
     system. Workers could contribute through payroll deduction 
     and the government would match their contribution. Workers 
     could then invest this pot of money in the stock market. 
     What's ironic about this plan is that it does nothing to 
     address the alleged crisis in the Social Security system. But 
     it does address the deep desire of Wall Street brokers to get 
     a massive new influx of commissions. And it would also ease 
     the way for cutting back Social Security in the years to 
     come.
       Some people have proposed shoring up Social Security by 
     cutting back or even eliminating rich people's access to 
     Social Security. At a time when the rich are filthy rich, 
     this does sound appetizing. But politically, it's probably 
     poison. Because these days, any program that's perceived as a 
     poor people's program is likely to end up on the chopping 
     block--just like Medicaid and welfare.
       Some of our elected officials propose raising the 
     eligibility age to get full Social Security benefits as a way 
     of keeping money in the system. The retirement age is already 
     slated to rise from 65 to 67 in the coming years, but they 
     want to force us to work even longer. Proponents of this idea 
     think it's only fair, since Americans are living longer than 
     they used to.
       Anyone who can make this argument has probably never worked 
     in a hospital, a refinery, or on a railroad. No one should be 
     forced to do this work at the age of 70! The average black 
     man can't possibly like this idea, since in this country a 
     black man born in 1950 was expected at birth to live only 59 
     years, on average: he'll never see a dime of Social Security 
     money. Instead, we should be talking about lowering the 
     retirement age to match that in other industrialized 
     countries--and to reflect our growing productivity (See ``But 
     Other Countries Do Better.'')
       One plan by two leading Democrats, Sen. Daniel Patrick 
     Moynihan of New York and Sen. Bob Kerrey of Nebraska, would 
     both increase the retirement age to 68 and reduce Social 
     Security's cost-of-living adjustment by a percentage point. 
     Dean Baker points out that such a COLA cut would really add 
     up for people who live into their 80s and 90s. By the time 
     someone reaches 85, they would see their annual benefit 
     reduced by 19 percent. That makes it hard to pay the rent.
       There are more equitable ways to being more money into the 
     Social Security system. The Labor Party and others advocate 
     eliminating the cap on the payroll tax. But our main message 
     is this: When it comes to Social Security, our most popular 
     and efficient social program . . . if it ain't broke, don't 
     fix it.

     

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