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Think Social Security is Secure? Think Again
Published on Sunday, January 1, 2006 by Newsday
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Think Social Security is Secure? Think Again
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by Saul Friedman
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This was the year the nation came uncomfortably close - closer than ever - to losing its most valued insurance against premature death, disability, and poverty in old age: Social Security.
It didn't happen. But don't celebrate yet. The war over the future of America's publicly owned-and-operated pension system is still to be fought. Of all the public policy issues that concern Act Two readers, this is the one that bears watching the most in 2006.
Although Social Security's defenders can claim victory in this first encounter, the ideologues who would turn it into millions of private accounts have not given up. Next year, an election year, will determine when and if the battle will be renewed and how it might turn out.
Meanwhile, advocates for the elderly will be occupied again in 2006 defending against new efforts by conservatives to slash and reshape every social program, including Medicare and Medicaid, because they don't believe government should be involved in matters they see as one's individual responsibility.
Social Security has been the crown jewel of the nation's social insurance commitment to American families through the administrations of 10 presidents. Yet only a few years after a Republican leader declared Social Security a politically untouchable "third rail of American politics," the nation twice elected a president who promised to end the system as it has operated successfully for 70 years.
Formally called Old Age, Survivors and Disability Insurance (OASDI), it serves 48 million beneficiaries and has become for American workers and their survivors one of the nation's last "defined benefit" pensions, meaning its benefits are guaranteed, based on earnings history.
Such pensions are disappearing as American corporations go belly up or, to save money, substitute individual retirement accounts, like 401(k)s, which are more risky for employees because they depend on the stock market. But that's what George W. Bush, with characteristic single-mindedness, has had in mind for Social Security since long before he became president.
In her fine new book, "The Battle for Social Security, From FDR's Vision to Bush's Gamble," (John Wiley & Sons) pension expert Nancy J. Altman recalls that in 1978, as a congressional candidate in west Texas, Bush told a group of real estate agents at the Midland Country Club, "Social Security will be bust in 10 years unless there are some changes ... The ideal solution would be ... for people [to be] given the chance to invest the money the way they feel."
Social Security was indeed facing long-term trouble. But President Ronald Reagan, who once suggested that Social Security should be voluntary, displayed growth in office. In 1983, he presided over a commission headed by Alan Greenspan that produced a far-reaching fix to save and strengthen Social Security as an insurance and pension system for the next 75 years.
The fix, which was supported by Vice President and later President George H.W. Bush, brought into the system federal employees, including members of Congress, raised the retirement age and increased payroll taxes to build a surplus in the trust fund, which today can pay for the retirement of most of the 78 million in the boomer generation.
But Altman, who worked for the Greenspan Commission, says that George Bush, the younger, who had long opposed the insurance nature of Social Security, did not change his views as president. When he promised in his campaigns to strengthen Social Security, she said, it was a cover for converting part and eventually all of the system into private investment accounts the first chance he got. That came on Nov. 4, 2004, at a news conference two days after Bush's close re-election when he announced, "we'll start on Social Security now."
The battle was joined last Feb. 2 when Bush declared in his State of the Union that Social Security was a "moral success in the 20th century" but outmoded and "headed toward bankruptcy." The president paid little attention to the boos of Democrats, for he had had success in stifling their dissents and convincing the Republican-dominated Congress to slash taxes, follow him into Iraq and privatize part of Medicare. Privatizing Social Security appeared doable, with or without the Democrats.
There had been many unsuccessful assaults on Social Security, Altman wrote, but "this one had the power of the presidency behind it and Bush's party controlled both houses of Congress." She told me, "For the first time in history, the president himself was fighting, not supporting, Social Security."
The liberal magazine The Nation said: "For Bush, privatization seemed within reach. He was building on a multi-year, multimillion-dollar conservative campaign that had convinced influential pundits that Social Security was in trouble ... " Several polls showed that many, if not most, Americans thought Social Security was in imminent danger of going broke. And the network of conservative writers, and think tanks such as the Cato Institute and the Heritage Foundation, which had been pushing private accounts for years, planned an ad campaign to cast doubts on Social Security's future.
Altman: "The president hid the ideological content of his proposal with language that was all about strengthening Social Security. The president sought to sell his proposal the way he sold the war in Iraq - there was a crisis that had to be acted on immediately ... He used the projected long-term deficit as an excuse for undermining Social Security."
At the same time, Altman said, Bush adopted what Cato called its "Leninist strategy," seeking to split the generations by assuring those past 65 or approaching retirement that their benefits would not be touched, while appealing to younger workers who had no memories of the Depression, and to whom individually controlled accounts and investment in the stock market had appeal.
Despite this array of conservative power and the president's ceaseless campaigning, his message ran into trouble with older Americans while younger people remained indifferent, Altman said. The president sought to convince Americans that the privatization of Medicare and Social Security would make of the United States an "ownership society," in which people took greater responsibility for their health care and retirement. But the president was hobbled by the popularity of the programs as safety nets and the facts of Social Security.
The system was not in imminent danger. Its Republican trustees reported during Bush's first term that it had enough money to pay full benefits for another 40 years. And because Social Security's benefits are paid with today's payroll taxes, the president could not explain how to finance the transition to private accounts and still pay current benefits without spending the surplus and/or cutting future benefits. Nor could he say what would happen to benefits for three million survivors of covered workers and the disabled.
On the road, the president couldn't explain his plan and what was to become of the huge surplus in the trust fund built since 1983. At one point the president went to a Social Security vault, which held billions of dollars in Treasury bonds belonging to the trust fund. Bush suggested they were "worthless IOUs."
Meanwhile, congressional Democrats hung united and tough against the proposal for private accounts. They insisted, as Altman says, that Social Security was financially sound, and they refused to be drawn into a battle over how to fix Social Security until Bush ended his insistence on private accounts. Bush stubbornly refused, and ultimately was forced to acknowledge that private accounts would not help Social Security's finances, which exposed his real intent.
Big business remained tepid towards Bush's proposal and came up with fewer advertising dollars than promised for his privatization campaign. But alarm bells went off at most labor unions. Dozens of liberal groups joined the battle against privatization, under the banners of the Campaign for America's Future, USAction, MoveOn, and the National Committee to Preserve Social Security and Medicare. And new online groups demonstrated the mobilization and money-raising powers of the Internet.
Most important, however, was the opposition of AARP to privatization. The White House had assumed it could at least neutralize that organization because AARP had supported the Republicans' Medicare prescription drug bill in 2003 over strenuous objections of angry Democrats. But AARP had been dealing with a mini-revolt among its membership and staff for supporting the Republican measure, and was losing thousands of members through defection.
As a result, AARP's chief executive, William Novelli, shocked the White House by drawing a line in the sand - AARP was amenable to compromise, but private accounts were out. Then, it went to work mobilizing its 37 million members, men and women over 50, with mass mailings and in its publications. And AARP spent millions on television advertising aimed at convincing the nation that it shouldn't tear down the Social Security house when only repairs are needed.
Altman gives most of the credit for winning this year's battle to the power of AARP and the steadfastness of older Americans who remember the lessons of the stock market - which has an untimely habit of going down as well as up - and remained solidly against private accounts. The Leninist strategy had failed.
The long-term problems of Social Security remain. But "of all the problems facing the nation," Altman writes, "Social Security's projected shortfall several decades away is one of the easiest to solve." And in partnership with longtime Social Security Commissioner Robert M. Ball, who helped put together the 1983 fix, the book includes detailed suggestions to bring the program into "close actuarial balance" for the next 75 years, as the system's trustees require. Bush, incidentally, said he wasn't interested in fixing the system for 75 years.
If the Republicans retain control of the House and Senate, conservatives indicate they will renew privatization efforts - with new tactics. Sen. Rick Santorum (R-Pa.) proposes to win over AARP and its constituents by guaranteeing their benefits in exchange for their support of partial privatization, with the implied threat that if older Americans are an obstacle to private accounts, their programs could suffer further.
The battle ended with a whimper. The war in Iraq, its drain on American lives and treasure, and the hint of a White House scandal already had sapped Bush's credibility when the Gulf hurricanes hit. Bush conceded at an October news conference that his Social Security proposal is off the table - for this year. But he added, "Social Security, for me, is never off."
WHAT IT COSTS: (Changes in Medicare and related programs, effective Jan. 1):
Medicare Part A
Most individuals have enough credit built up in Social Security - 40 quarters of paying taxes into the system - that they don't have to pay a premium for Part A. Individuals with fewer than 40 quarters of coverage must pay the following premiums:
Quarters Cost per month:
29 or fewer - $393
30-39 - $216
All participants must pay the following costs:
Hospital Deductible: $952 per benefit period
Coinsurance payments: Days Cost:
1-60 - $0
61-90 - $238 per day
91-150 - $476 per day
Skilled Nursing Facility
(After hospitalization):Days Cost:
21-100 - $119 per day
Medicare Part B
Premium: $88.50/month
Deductible: $124/year
Social Security Changes for 2006 (Amounts that Social Security recipients may earn before benefits get reduced are as follows):
Before full retirement age: $12,480 in earnings are exempt; benefits reduced $1 for every $2 earned over $12,480
During year of full retirement age: $33,240 in earnings exempt from January through December during the calendar year you reach full retirement; reduced $1 for every $3 earned above $33,240
After full retirement age (Full retirement age varies according to date of birth): All earnings are exempt. The amount of wages subject to Social Security taxes is increased to $94,200. The Medicare portion of the Social Security tax (1.45 percent) applies to all earnings.
QI (Qualified Individual) Program: On Oct. 20, Congress extended the program to help low-income people pay premiums for two years, until Sept. 30, 2007. Medicare beneficiaries who have incomes between 120 percent and 135 percent of federal poverty levels and assets of less than $4,000 for an individual and $6,000 for a couple (excluding the home) may have their Medicare premiums paid, through Medicaid, by the federal government.
SOURCES: The Centers for Medicare and Medicaid Services; Social Security; Brookdale Center on Aging.
Copyright 2006 Newsday Inc.
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