[Sidebar: Social Security scam promoted
with tax dollars]

The Bush administration renewed its attack on New Deal programs with a new proposal to privatize the 70-year-old Social Security program and another call to undercut wage and hour laws.

In his State of the Union address, President Bush called for Congress to enact his plan to allow workers under age 55 to voluntarily use up to $1,000 a year of their Social Security payroll taxes to invest in a limited number of stock and bond funds.

Bush claimed the Social Security proposal is needed to stave off bankruptcy of the program. "Social Security was a great moral success of the 20th century and must honor its great purposes in this new century," he said. "The system, however, on its current path, is headed toward bankruptcy. And so we must join together to strengthen and save Social Security."

Labor and Democratic leaders and economists immediately challenged the fiscal wisdom and integrity of Bush's Social Security plan.

AFL-CIO Pres. John J. Sweeney said Americans need to hear "sound facts and straight talk" about a program as important as Social Security. Instead, Sweeney said, Bush "didn't say that working people would end up with lower benefits under Social Security privatization. He didn't talk about the high price working families would pay for privatization in benefit cuts, new government debt, and potential Enronization of America's most successful family protection program."

GCC/IBT Vice Pres. Lawrence Martinez, who chairs the General Board Legislative Committee, noted that Republican congressional leaders attacked a proposal by former President Clinton to invest Social Security trust fund money in stock and bond markets at a time when those markets were performing well. "Then, they thought that plan was too risky. It's hypocritical of them that they don't want to take that same risk on the trust fund money, but they want individuals to take that risk with their benefits."

"A majority of young people don't have a retirement plan," Martinez said. "If you take Social Security away from them, they'll have nothing. We'll go back to the time before the New Deal when millions of older Americans lived in poverty."

Senate Minority Leader Harry Reid (D-Nev.) vowed that Democrats would fight the privatization plan.

"Democrats are all for giving Americans more of a say and more choices when it comes to their retirement savings," Reid said. "But that doesn't mean taking Social Security's guarantee and gambling with it."

House Minority Leader Nancy Pelosi (D-Calif.) pledged that Democrats will not let Bush turn "the New Deal into a raw deal."

Under the current Social Security system, worker and employer payroll taxes fund guaranteed monthly benefits for more than 45 million retirees.

The administration's plan would allow younger workers to divert up to $1,000 a year in their payroll taxes to invest in selected stock and bond funds. Workers who take this option would lose a proportionate share of their guaranteed Social Security payment, plus interest equal to the amount that money would have earned if the government had invested it in Treasury bonds–about 3 percent above the rate of inflation.

According to the Center on Budget and Policy Priorities (CBPP), an average worker born in 1990 who begins to borrow $1,000 per year from Social Security contributions to invest in a private investment account in 2011–the first year the program is fully effective–would accumulate $222,000 at retirement, assuming an investment earnings rate of 4.6 percent per year.

After the $152,000 reduction in Social Security benefits is netted out, the worker would be left with an increase in total income from both Social Security and the private account equivalent to the income from $70,000–about one-third of the account. If the annual rate of return on investments is 3 percent, the worker would make nothing extra. If the investment return is below 3 percent, the worker would be poorer on retirement for having chosen the private account option.

In addition to gambling workers' benefits, the private account proposal would do nothing to make the Social Security trust funds more solvent–as administration officials admitted. Bush claimed that Social Security faces a crisis in 2018 when "Social Security will be paying out more than it takes in."

However, CBPP said most analysts agree that Social Security will have no problem paying benefits until at least 2028. But CBPP said the effect of Bush's private investment account plan would require the trust fund to begin cashing in its bonds to pay benefits in 2020 and would exhaust the fund by the end of 2031, compared to 2042 under current law.

CBPP noted that Social Security's shortfall over the next 75 years is about one-third to one-fifth as large as the Bush tax cuts, which primarily benefit the wealthy and corporations. The administration proposed in its Fiscal 2006 budget to make those tax cuts permanent.

The Bush administration calculated the impact of the Social Security proposal on the U.S. debt to be about $750 billion. However, CBPP called this figure "misleadingly low." The center said the true impact would add about $4.9 trillion to the debt between 2009 to 2028.

The big winners from Bush's Social Security proposal would be investment brokers and money managers, who stand to make commissions on trades whether the stock and bond funds go up or down. These commissions and fees are estimated to add up to billions of dollars.

The Center for Economic and Policy Research noted that the current cost to administer Social Security is less than 0.5 percent of every dollar paid out in benefits. In England and Chile, where privatized systems already exist, 15 cents of every dollar are eaten up by administrative fees paid to private firms. The President's Social Security commission estimated that private accounts would have 5 percent administrative costs–still nearly 10 times the current costs.

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