Anyone Want to Buy a Private Pension Plan? Going Once…
That deafening silence you hear coming from the McCain campaign is straight-talkin' John touting his plan for privatizing Social Security...not.
With Wall Street banks falling like dominoes, a hundred billion dollars vanishing overnight, and the Treasury Department scampering about with trying to prop up failing enterprises from Bear Stearns to Fannie Mae, and with domestic and global equity and bond markets swooning, Americans are afraid to open those envelopes that come every quarter telling them the value of their hard-earned 401(k) retirement plans.
No wonder John McCain isn't touting privatizaton these days.
It's not just that many of those private 401(k) plans McCain and his ilk so love for the working stiff were invested in the very financial institutions that have seen their share values drop to zero, or in other financial institutions that were themselves heavily invested in the stocks or debt instruments of the growing list of failed institutions. It's that the tottering US financial edifice is shaking the broader markets, making stocks, bonds, and even giant insurance companies like AIG look like houses of cards, and a poor bet for funding one's dotage.
Paul Krugman, in today's New York Times, says that the Federal Reserve Bank and the US Treasury Department, in letting Lehman Bros, the nation's fourth largest investment bank, go bankrupt, instead of doing yet another government bailout, was a kind of financial Russian roulette. Could Lehman's collapse lead to a wholesale collapse of Wall Street and the US banking system, ala 1929-31? Krugman says, incredibly, that nobody really knows, including Fed Chairman Ben Bernacke and Treasury Secretary Henry Paulson.
That's not the kind of thing you want to hear when you've managed, over the course of a working life, to save maybe a few hundred grand in a tax-deferred retirement plan that is all invested in stocks and bonds. Nor is it very comforting, if you are one of the millions of Americans who put your money into some kind of insurance annuity, expecting to get a guaranteed stream of income for life, to hear that AIG, the largest insurance company and one of the biggest issuers of such "private pension" programs, is struggling to come up with $40 billion in cash to avoid going belly up itself.
Now fortunately, for nearly all American workers, there is a backstop: Social Security, which is not invested in any financial instruments, and which pays out monthly benefits to retired and disabled workers and their dependents based not upon the whims of the markets but on the lifetime earnings of the worker in question. Unlike a 401(k) investment, which is dependent for its size and reliability on the performance of the financial markets in which its assets are invested, or an annuity, which is dependent upon the financial survival and viability of the insurance company which issued it, Social Security is a program in which the payments of benefits are an obligation of the federal government, and are paid from a fund of money that has been paid into by the retiree and her employer in earlier years, by current workers and their employers who pay a tax on current earnings, and, if necessary, by supplemental funds allocated by the Congress. Social Security benefits are adjusted each year for inflation (though since President Bill Clinton, those adjustments have been reduced because of a sleight of hand that makes inflation appear to be less than it really is).
McCain, and Republicans in general, have been pressing for years to have Social Security privatized, or partially privatized, with at least some of the money taken from employees and employers for Social Security invested in financial instruments such as stocks or bonds. They've tried to sell this snake oil to young workers by pointing to the rising stock market, and claiming ominously that some day, with so many current workers approaching retirement, Social Security will go "bankrupt." Last year, the Bush Administration, which has filled the Social Security Administration with GOP hacks, actually had notices sent out to every American worker warning that "unless something is done," Social Security might not be there for younger workers when it's their turn to retire.
This kind of cynical scare tactic is beneath contempt, and is designed to weaken support for one of the most significant progressive legacies of the New Deal. The reality is that as the Baby Boom generation reaches retirement, starting with the first Boomers who will hit 65 in 2011, the elderly lobby, already enormously powerful, will swell to become perhaps the most powerful "special interest" voting bloc this nation has ever seen. Retired Americans will have the electoral clout in another 10 years to make Social Security whatever they want it to be.
They (we really, since at 59 I am part of that generation) will insure that the government pays us and our fellow retirees a decent retirement stipend, and we will also insist that reforms be undertaken to insure that our kids also get secure retirements.
We will do this not by undermining the program, as McCain and other Republicans have called for, by privatizing all or part Social Security, but by making sure that every dollar earned by even the richest of people is taxed, instead of having the social security tax limited to the first roughly $100,000 of earnings. We will demand that if more taxes are needed, they be paid by employers, not workers. Currently employers and employees each pay about 7.5% of wages as a payroll tax into the Social Security Trust Fund. There is no reason why that split should be 50/50, though. Employers could pay a bigger share. (Right wing economists try to argue that any tax paid by an employer ultimately comes out of the employees' wages, but this ignores the law of supply and demand: workers don't negotiate wages, or accept a job at a certain pay level, based upon the gross wage being paid, but on what they will be taking home each payday. Extra taxes paid by an employer could not be automatically taken out of employee pay. They would have to come out of corporate profits.)
The timing of the current spreading financial crisis has exposed McCain's call for privatization of Social Security as a bad idea masquerading as reform. Since McCain can be expected to pursue the idea if elected, it's just one more reason for American voters to reject his candidacy.