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WASHINGTON SCENE

IWPR Debates Social Security Privatization on Capitol Hill

On July 14, women representatives for and against Social Security privatization met on Capitol Hill and argued their cases in a debate sponsored by the National Council of Women’s Organizations (NCWO) and Women for a Social Security Choice.

Arguing in opposition to private accounts, IWPR President Dr. Heidi Hartmann, NOW President Kim Gandy, and Rep. Hilda Solis (D-CA) emphasized that Social Security is not just a retirement program but is also a family insurance program—nearly one-third of beneficiaries are disabled workers, their families, or survivors of deceased workers. According to Dr. Hartmann, Social Security’s progressive formula, inflation-protected lifetime benefits, and family protections are especially important for women, since women live longer than men but have lower earnings than men over their lifetimes. Dr. Hartmann and Gandy argued that there are many ways to fix the problem of long-term solvency and strengthen Social Security for women, but privatization is not the answer. The President’s privatization plan, if implemented, would only add $5 trillion to the national debt over the first 20 years.

On the other side of the debate, Leanne Abdnor, Executive Director of Women for a Social Security Choice, Alison Acosta Fraser, Director of the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation, and Rep. Melissa Hart (R-PA) argued in favor of significant change, including private accounts. They said that while Social Security worked well when it first started in 1935, it is no longer suited for today’s increased longevity, lower birthrates, and changed family structure. Fraser and Abdnor argued that Social Security is in crisis with trillions of dollars debt and that the Social Security trust fund is simply a set of IOUs with nothing to back them up. Therefore, they argued, private accounts would give more security to women and younger people by allowing individuals to control their own accounts.

The following sites clarify some of the major issues brought up during the debate.

More information on the Social Security trust fund can be found in:
The 2005 OASDI Trustees Report (Social Security Administration, March 2005)
Defaulting on the Social Security Trust Fund: What It Would Mean, and How It Would Be Done (Center for Economic and Policy Research, March 2005)
Social Security: A Background Briefing (AARP, March 2005)
Does Social Security Face a Crisis in 2018? (Center for Budget and Policy Priorities, January 2005)

Different ways to achieve Social Security solvency are discussed in:
Options to Balance Social Security Funds Over the Next 75 Years (National Academy of Social Insurance, February 2005)

For young people, Rock the Vote provides a fact sheet Social Security Will Never Go Broke and also has a flash video about Social Security solvency.

A detailed explanation of Social Security’s disability, survivor, and retirement benefits is available in Women and Social Security: Benefit Types and Eligibility (IWPR, June 2005)

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IN THE NEWS

Social Security Debate on Hold; President Insists on Solvent Social Security

In late June, key Republican lawmakers announced a scaled-back version of the President’s privatization proposal, which would create private accounts from the surplus the Social Security system is currently accumulating (see IWPR’s WomenSSA No. 11 for details). Recent news articles, however, report that with less than two weeks until the August Congressional recess, lawmakers are postponing the debate about Social Security until at least September (“Social Security Debate on Hold,” CNN, July 14, 2005). Senator Charles Grassley, Chairman of the Finance Committee, and Rep. Bill Thomas, Chairman of the Ways and Means Committee, have said that they have been bogged down with other more time-sensitive issues, including confirmation of a new Supreme Court justice. They said, though, that they are committed to advancing Social Security reform before the year is out (see also “Lawmakers Postponing Bush Priority on Benefits” New York Times, July 15, 2005).

Meanwhile this week, the chairman of President Bush’s Council of Economic Advisers, Ben Bernanke, has said the President will insist that any proposal to reform Social Security must address the system’s long-term financing problems (“Aide Says Bush Wants Solvent Social Security,” Washington Post, July 19, 2005). This remark undermined the latest effort by some Republican leaders in the House who indicated their interest in moving a proposal this fall that establishes modest private accounts using the system’s surplus but that doesn’t fix the problem of long-term solvency. Bernanke said the President is still committed to two basic principles of Social Security reform—restoring the system’s solvency and creating private accounts.

Private Accounts Would Have Trade-offs Between Speed and Cost

A recent Washington Post article, “Cost, Speed at Crux of Social Security Debate,” ( July 7, 2005) discusses trade-offs that private accounts, if implemented, would face between speed of crediting contributions into accounts and administrative costs. In Chile, where accounts are credited with every paycheck, administrative costs go up to 18.5% of contributions. In Sweden, contributions take 18 months to be credited and administrative costs are 0.7% of an average participant’s assets. Social Security’s chief actuary Stephen Goss said that under any final privatization plan, accounts would be credited after receiving earnings data from the Treasury, which would result in an average lag time of 15 months. Some pension experts question whether such a delay would be politically acceptable, especially since many Americans are accustomed to the quick response of their 401(k)s.

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NEW RESEARCH

Minorities Would Lose Ground with Private Accounts

A recent issue brief Two Steps Back by the Economic Policy Institute shows the importance of Social Security in narrowing the retirement wealth gap between minority and white households. During their working years, African-American and Latino households earn substantially less than white households. Social Security’s progressive benefit structure, however, compensates for their lower incomes and narrows the racial gap in retirement income for households 65 and older. This ameliorative effect is helpful, especially given that minorities are less likely to have employer-provided pension coverage. Ultimately, any national retirement system must take into account that minorities earn less and are less likely to have employer-provided pensions. Social Security reforms, like private accounts that fail to compensate for lower incomes, will be less likely to ensure a comfortable and dignified retirement for minority households.

Think Tanks Duke It Out on Hispanics and Social Security

In a recent brief, Hispanics’ Large Stake in the Social Security Debate, the Center for Budget and Policy Priorities (CBPP) argues that the President’s proposed reforms for Social Security would harm Hispanics. Currently, Hispanics disproportionately benefit from Social Security because of their lower incomes, longer life expectancy, and higher disability rate. The President’s plan calls for “sliding scale benefit reductions,” which would harm middle-class Hispanics. Additionally, the CBPP brief states that the debt incurred to establish private accounts would fall on the shoulders of younger Americans, disproportionately harming the overwhelmingly young Hispanic population. CBPP proposals for strengthening Social Security funding include retaining the estate tax and earmarking its revenues for Social Security, along with increasing the level of earnings subject to the Social Security tax.

The Heritage Foundation countered the CBPP in a WebMemo, Hispanic Workers Should Back Personal Accounts. Private accounts, according to Heritage, would encourage savings among low-income Hispanics. When workers retire, Heritage argues, they could use part of the account to create a retirement annuity and save the rest to pass on to their grandchildren. The Heritage Foundation also criticizes the CBPP methodology, which follows the one used by the Congressional Budget Office. CBPP has replied to the Heritage Foundation’s criticism in Social Security and Hispanics: A Reply to the Heritage Foundation.

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UPCOMING EVENTS

Birthday Parties for Social Security’s 70th Year

Sunday, August 14, marks the 70th anniversary of Social Security. On this day in 1935, former president Franklin Delano Roosevelt signed the Social Security Act, which over the years has lifted millions of Americans out of poverty. People across the country are organizing “birthday parties” for Social Security. A listing of birthday parties in local areas is available on the events calendar of Americans United to Protect Social Security.

Roosevelt Institute Celebrates Social Security’s 70th Birthday

The Franklin and Eleanor Roosevelt Institute in Hyde Park, NY is hosting a Social Security birthday celebration on Saturday, August 13, from 10 am to 5 pm. The celebration will feature a debate between Paul Krugman of the New York Times and Michael Tanner of the Cato Institute, a picnic lunch, and a formal program with music and reminiscences from early recipients of Social Security. For more details, please visit the Roosevelt Institute website www.feri.org.

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