Social Security privatization battle intensifies nationwide

By DON McINTOSH, Associate Editor

The end of April marked the close of President George W. Bush’s “60 stops in 60 days” tour. Bush and officials from his Administration spent two months traveling the country to talk about their plans for Social Security.

Polls suggested the country was unpersuaded. Over the course of the 60 days, support for the president’s private accounts proposal fell. Perhaps not coincidentally, stock prices also fell in recent months.

Bush still has not endorsed any bill in Congress, but has talked in general terms about his plan.

Bush proposes to allow individuals who are currently under 55 years old to divert up to two-thirds of their Social Security contributions into individual private investment accounts. Any money they diverted would later have to be paid back in the form of a reduced traditional Social Security benefit — at interest equalling inflation plus 3 percent a year. The money diverted into private accounts would be allocated among a small number of government-selected investment funds. Individuals would choose which funds to place the money in.

Upon retirement, most individuals would be required to use the money in the private investment account to purchase an annuity — a fixed payment for life — from a private insurance company. Unlike Social Security, payments from the annuity would not be adjusted for inflation.

Economists, and even Bush Administration officials, acknowledge that diverting money into private accounts does nothing to solve the revenue shortfall that Social Security is forecasted to have in the 2040s. In fact, every dollar diverted brings the shortfall closer.

So to solve the solvency problem, the president has been advocating benefit cuts in addition, though he generally hasn’t called them benefit cuts. Instead, the cuts take place by changing the formula used to compute starting benefits. Currently, starting benefits rise according to “wage indexing.” Bush has advocated a shift to “price indexing.” Since wages tend to rise faster than prices, wage indexing enables benefits to grow in relation to the nation’s overall economic productivity, unlike price indexing. So a shift to “price indexing” means a cut in benefits — small at first but gradually increasing.

At a press conference April 28, Bush changed this part of his proposal slightly. He now proposes something called “progressive indexing.” Under progressive indexing, retirement benefits for the poorest would rise with wages, while retirement benefits for the richest would rise with prices. The shift would amount to a gradual and increasing cut in benefits. Though the wealthiest would get the biggest cuts, all workers averaging more than $22,000 a year would experience some benefit cut.

As with other aspects of Bush’s Social Security plan, talk of progressive indexing focuses only on the retirement portion of Social Security. It’s unclear how it would affect the disability and survivor portion of Social Security. Currently 41 million Americans, nearly a third of all Social Security beneficiaries, get their checks from the disability and survivor benefit part of the system.

It’s also not clear whether Democrats in Congress will support progressive indexing as a fix for Social Security’s forecasted revenue shortfall.

But they are lining up to tell anyone who will listen that they oppose carving private investment accounts out of Social Security, and that they will stand in the way of any bill containing such a proposal.

On April 26, the U.S. Senate Finance Committee held its first hearing on “proposals to achieve sustainable solvency, with and without personal accounts.” Senators heard from three advocates and two opponents of the accounts. Democrats, including Oregon’s Ron Wyden, spoke strongly against private accounts at the hearing, as did Olympia Snowe, a Republican Senator from Maine.

Saying that private accounts will solve Social Security’s projected shortfall, Wyden quipped, “is like telling someone you can have three hot fudge sundaes a day and lose weight.”

Wyden said he met with several Wall Street leaders who told him that privatization would reallocate risk and threaten the safety net.

Oregon’s Republican U.S. Senator, Gordon Smith, is also on the Senate Finance Committee, but has remained non-committal on Social Security privatization, prompting a vocal response from labor and senior groups.

In April, several groups began airing radio ads urging Gordon Smith to oppose private accounts.

And canvassers for Working America — the AFL-CIO’s associate membership group — have been going door-to-door to talk to Oregonians about Social Security and collect hundreds of handwritten letters to deliver to Smith.

The day of the Senate Finance Committee hearing, the labor-backed coalition Americans United to Protect Social Security held a rally outside Smith’s Portland office. Privatization is a “lose-lose” scam, Oregon Labor Commissioner Dan Gardner told rallygoers. Gardner said those who divert money into private accounts could lose their investments, and those who don’t divert could lose under the proposed changes to the benefits formula.

Just as the Senate Finance Committee hearing was drawing to a close, three Oregon Democratic congressmen participated in a conference call with reporters to declare their opposition to carving out private accounts.

“A large majority of Americans and Oregonians have rendered judgment on the president’s privatization plan,” said Congressman Peter DeFazio, “and have concluded it’s a risky scheme that requires borrowing trillions of dollars.”

Congressman Earl Blumenauer said he drew the same conclusion from meetings with constituents: People don’t like the idea of replacing Social Security’s guarantee with Wall Street market risk.

The crisis in Social Security was manufactured, said Congressman David Wu, but Oregonians and Americans have not been fooled this time. “The more the president talks about his Social Security privatization plan, the less popular it becomes.”

Ever since Nov. 4, 2004, when President Bush identified overhaul of Social Security as his top second-term priority, many Republican members of Congress have “kept their powder dry” — refraining from making commitments until the president led the way with a commitment to a specific proposal. But as of press time it appeared top Republican leadership had shifted strategy. Now it appears Congressional Republicans will have to work out the specifics.

In the Senate, the Finance Committee will hold another hearing on Social Security in May, and Committee Chair Chuck Grassley (R-Iowa), said he intends to present legislation for committee action this summer. Oregon’s Smith and Wyden would have a hand in whether and what bill makes it out of committee.

In the House, Ways and Means Committee chair Bill Thomas (R-Calif.), said his committee will begin a series of hearings May 12 that will continue at least once a week until legislation is produced, which he predicted would be in the early part of June. No members of Congress from Oregon are on that committee, and Democrat Jim McDermott is the only member from Washington.