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Social Security Needs to Be Stabilized for Future

Social Security has revolutionized how America’s workers prepare for their retirement. It operates as both retirement security and social insurance, offering a lifetime, inflation-protected benefit for senior citizens, disabled workers and widows. It has saved millions from poverty, reducing the number of seniors living at or below the poverty line from 50 percent to less than 10 percent today. Since its inception in 1935, this New Deal has been a good deal for hundreds of millions of Americans.

Today, we find ourselves being asked if Social Security is still a good deal for Americans. The answer is a resounding yes. Together, pensions, personal savings and Social Security make up the three key components of American retirement portfolios; however, it is only Social Security that ensures our workers have retirement security. Today, only 41 percent of retirees have an employer-sponsored pension — and less than one in five low-income workers receive a pension. While 60 percent of retirees receive income from assets, this income tends to be very modest — less than $2,000 a year for the median retiree.

We should certainly increase incentives for individuals to save and for employers to offer pensions, but we must also acknowledge that Social Security remains the cornerstone of retirement security for most Americans.

As such, its long-term financial solvency must be closely monitored — and it is. According to the Social Security actuaries, the trust funds currently carry enough reserves to pay full benefits to all who are eligible through 2042. The Congressional Budget Office projects that the trust funds are even stronger than that, carrying enough in reserves to pay full benefits through 2052. At that time, the trust funds will still have enough in revenue to pay 73 to 81 percent of benefits, according to the actuaries and CBO respectively.

Critics of Social Security point to these dates and sound the alarm bells. Yes, Social Security needs to be shored up, and the sooner we do so, the easier this task will be. But, Social Security is not facing an immediate financial crisis. Efforts by critics to paint it as such are patently false, as are arguments that privatization “strengthens” Social Security. Let’s be very clear: Privatization proponents do not support private accounts in addition to Social Security. They support private accounts instead of Social Security. And, replacing Social Security with private accounts does not improve the solvency of Social Security — it significantly worsens it, eroding the foundation of the system and jeopardizing guaranteed retirement benefits for seniors, disabled workers and survivors.

The president has suggested that a plan put forth in 2001 by his handpicked Social Security commission would be a “good blueprint” for reform. Under this plan, one-third of a worker’s contributions to Social Security would be diverted from the trust funds into private accounts. As a result of this plan, the trust funds would lose almost $2 trillion in the first 10 years alone.

This diversion weakens the trust funds so significantly that the date by which they are no longer able to pay full benefits is moved up by more than two decades — 21 years — from 2042 to 2021. Expediting insolvency is an odd way of shoring up Social Security.

Worse yet, these losses will not stop after the first decade. These so-called “transition costs” continue for 50-60 years. Although the plan claims it will find additional money to put into the trust funds so current beneficiaries can continue to be paid, it resorts to accounting gimmicks to hide trust fund deficits. For example, the plan relies heavily upon deficit financing — more than $200 billion a year until 2054. But, it never tells us where this money comes from or how we pay it back. Borrowing of this magnitude would mean that our national debt will rise to unprecedented levels. This new debt alone — debt in addition to what is already projected under current law — would grow to equal 24 percent of gross domestic product.

These staggering “transition costs” will force substantial benefit cuts. Private accounts are touted as voluntary — if you want to remain in traditional Social Security, proponents claim you will be free to do so. However, even those who opt not to participate in a privatized system will see benefit cuts. For example, if you are in your late 20s today, when you retire at age 65 in 2042 your benefits will be 25 percent less than they would have been under today’s Social Security system.

Further, these benefit cuts won’t just apply to retirees — disability and survivors’ benefits are cut as well. Today, almost 30 percent of Social Security beneficiaries — approximately 14.1 million people — receive either disability or survivors’ benefits. All of these beneficiaries — who range from severely disabled workers to children who have lost a parent — would see the same cuts as retirees.

Although this commission plan is viewed as a starting point for privatization, the president has yet to endorse or propose any specific legislation.

To date, President Bush has offered the American people only generalities, a set of principles loosely outlining his vision for reform. Unfortunately, principles are not the same as policy. The benefits and drawbacks of President Bush’s plans for privatization, and their impact on our seniors, cannot be fully measured absent a specific, detailed proposal.

If the president and leaders of his party are serious about Social Security reform, I urge them to come forward with a concrete legislative proposal. Its costs must be fully accounted for in his fiscal 2006 budget, so the fiscal impact of privatization can be made plain for all Americans to see. Once the facts — and the benefit cuts — are unveiled, workers and retirees alike can decide for themselves whether privatization enhances their retirement options — or whether the administration is trying to replace the New Deal with a raw one.

Rep. Robert Matsui (D-Calif.) is the ranking member on the Ways and Means subcommittee on Social Security.

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