Call to Renewal offers a helpful update on discussions of Social Security privatization – including revised estimates of its costs and its risks, and its negative impact on those with lower incomes. They include links to other good resources.

[6-30-05]

Legislative Update
Social Security Privatization: Part II
By Yonce Shelton

The discussion about Social Security has revolved mostly around President Bush’s proposal to "carve out" personal accounts from existing benefits. He has proposed letting workers younger than 55 divert up to 4 percent of their wages subject to the Social Security tax into accounts they could invest. Workers’ traditional Social Security benefits would be reduced by the amount diverted into the accounts plus another 3 percent, reflecting what the diverted sums would have earned in interest under the traditional system. This approach would require government to borrow to prevent cuts in retirees' monthly checks.

This month, the privatization discussion expanded to include proposals that would create personal accounts from Social Security’s surplus. The Social Security surplus is the amount of payroll tax paid into the system that is not needed to pay current benefits. That money is expected to run out after 2016 as the baby-boom generation retires. Senators DeMint (R-SC), Crapo (R-ID), Santorum (R-PA), Coburn (R-OK), and Graham (R-SC) have introduced legislation that would use the surplus to create optional personal accounts for workers under 55. Reps. Shaw (R-FL) and Ryan (R-WI) have introduced a bill in the House with similar provisions.

In Senator DeMint’s bill, the size of each worker’s account would correspond with their proportional share of the surplus (surplus amount divided by number of accounts). Workers who took accounts would see their guaranteed Social Security benefits offset by the amount diverted into their accounts. The money would be invested in government bonds. The surplus from Social Security taxes this year will leave enough for an average of $434 available for each account. By 2016, as the surplus is reduced, all that would remain is $40 per account. The proposal would not extend the solvency of Social Security.

According to the Center on Budget and Policy Priorities, the proposal would add $600 billion to the federal debt over the next decade, come with huge administration costs, and push the program to insolvency two years faster than with no changes. As with the President’s privatization proposal, the DeMint plan would reduce traditional Social Security benefits for workers. Moreover, workers would lose money on the personal accounts if they did not earn a rate of return more than 2.7 percent above the inflation rate. One noted economist has projected that the rate of return would likely be lower than 2.7 percent above inflation.

Largely absent from the debate is how Social Security reform would affect "the least of these" – those retired who rely primarily on the guarantee of Social Security, as well as the disabled, widowed and low-income children. For a broader picture of Social Security see, click here.

To offer thoughts on Social Security and what moral values are relevant in the debate email us at socialsecurity@calltorenewal.org.

Yonce Shelton is the National Coordinator and Policy Director at Call to Renewal

New and Noteworthy Resources on Social Security

Social Security: Covenant for the Common Good
A reaction to President Bush's proposed Social Security reform, written by Jim Wallis, Convener of Call to Renewal, and a list of CTR priorities for Social Security.

To Preserve and Strengthen Social Security: Religious Organization Statement of Principles
Sixteen national religious organizations, including Call to Renewal, released a joint statement of principles on April 26 to guide Congress as it considers how to preserve and strengthen Social Security.

Social Security Privatization: Abandoning Family Values
Center on American Progress
An analysis of the effects of the Administration's reform proposals on various marginalized groups.

Social Security: A Background Briefing
AARP
In-depth information on the history, current structure, and possible changes of the Social Security program.