As the 109th Congress begins, a full slate of issues are on the table concerning working families. Issues such as comp time, trade with Thailand, taxation of health care benefits, private pension plans and erosions of workers rights will all be debated during this session. The President is claiming a “mandate” victory from the election that essentially entitles him to anything he wants during the new four years. However, his 51% to 48% is the smallest margin of victory in history for a sitting U.S. President. A 2% margin of victory hardly cries out a “mandate.”

Bush feels that one of his rights with this “mandate” is the to overhaul the Social Security system. While there are many issues facing working Americans this year in Washington, no other could have such a broad reaching negative impact than that of privatization of Social Security.

The Social Security Act of 1935 established the current system that makes up two-thirds of the income of the 47 million Americans who draw Social Security checks. Of these 47 million, one in six find themselves in a situation where Social Security is their only income.So Just How Does Social Security Work?

About 96% of workers in the United States contribute to Social Security, paying 6.2% of their earnings up to $90,000 into the system. Employers match this contribution that funds the system. This money is not placed in a bank for safe keeping, but rather operates on a “pay as you go system.” The benefits that today’s Social Security retirees receive are paid out of taxes collected from today’s workers that are earmarked for the payment of these benefits. Any money left over after paying benefits is put into the Trust Funds, which are invested in U.S. government securities to provide funds for future use.

Social Security funds are available to those who have paid into the system and reach retirement age. This group represents 34 million workers and their dependents. Disabled workers and their dependents make up 7 million of those receiving assistance from Social Security. (To qualify for disability insurance a person must have a prolonged or terminal condition and make less than $840 a month). The last group who draw from Social Security are the 7 million dependents of deceased workers. All totaled this group comes to 47 million.

Retirement benefits are based on average earnings during a thirty-five year career. Higher lifetime earnings result in higher benefits up to an inflation-adjusted cap. The full benefit currently is payable at age sixty-five and a half (scheduled to rise gradually to sixty-seven in 2022); workers who retire at age sixty-two get a reduced benefit based on the likelihood of their collecting benefits over a longer term.

In 2003 the poverty rate among senior citizens was 10.2%, less than the national average for other adults. Without Social Security, that number would have increased to 40%. On average 34% of senior citizens reply on Social Security for at least 90% of their income and for 21% their entire income is made up of Social Security.The Problem
Social Security works much like your personal checking account. Each month you make contributions and then write checks to pay bills. Whatever is left over is put back for a rainy day.

As long as the population rate is constant this isn’t a problem. However, following World War II there was a growth in the population and the result was the “baby boomers.” This spike in the population will place the system in a situation of being slightly overburdened in 2008 when the “baby boomers” begin to draw off the system. Another issue involves the fact that the average life span is increasing and with that raising the number of years the average beneficiary draws off the system. These issues together with economics have resulted in a situation where the Social Security Board Trustees predict that by 2018 the amount of payout on the system will begin to pass the collection rate and require Social Security to begin to use the trust fund to meet their monthly requirements. If this trend continued in 2042, the Social Security Board Trustees projections show that the trust fund would be depleted and the system would only be able to afford to pay 73% of each recipient’s monthly benefit. The system would not be bankrupt or depleted contrary to many published reports.

A recent Congressional Budget Office reported estimated that Social Security would be self-sufficient until 2052 and would them pay 80% of promised benefits. In 2052 the oldest “baby boomers” would be 106 years old and the youngest would be 88.Privatization

Social Security is faced with the issue of developing a way to continue paying full benefits during the last portion of the “baby boomers.” The Bush Administration is touting their solution and that is to privatize social security. The idea would be diverting payroll taxes from the current system into private accounts that are used for investment.
Essentially current dollars that are going into the Social Security fund would be directed into private investment accounts that are invested in the stock market. The Bush plan pushes these investments could yield a 6.5 to 7% return on investment. That plan would require the economy to perform at much higher levels than it currently is to provide any return close to that.

The Truth
While the Bush plan may tout high returns, the truth is the plan can’t deliver. According to all experts the White House’s plan doesn’t add up. But suppose their numbers were right; the plan still calls for significant reductions in benefits. The fact of the matter remains that Social Security is not in the crisis that the Bush Administration says it is and privatization only makes matters worse.

The current Social Security trust fund is invested, but in government bonds. As a result, the brokers and bankers can’t make any money on it. Most experts agree that brokerage and handling fees occupy about 2% of each stock trade. But that is for those who know what they are doing. A number of surveys show that most people lack the knowledge to make even basic decisions about investing. For example, a Securities and Exchange Commission report synthesizing surveys of investors found that only 14 percent knew the difference between a growth stock and an income stock, and just 38 percent understood that when interest rates rise, bond prices go down. Almost half of all investors believed incorrectly that diversification guarantees that their portfolios will not suffer if the market drops, and 40 percent thought that a mutual fund’s operating costs have no impact on the returns they receive.

Since the public by in large doesn’t know how to invest, they will have to rely on a broker to do it for them. As a result, if any is earned, much will be paid through fees.Since 1988 Great Britain has allowed workers to open private accounts with their governmental assistance. On the average 43% of the money invested has been paid in handling fees.
So if the market doesn’t eat your gains, more than likely a broker firm will. So in reality benefits under the Bush plan would be as lower or lower than if nothing is done, except Wall Street will be making money on you.

But there is another issue to consider. Social Security was never intended to be an investment opportunity, but rather income insurance. When we purchase insurance for our automobile, we do it with the hope that it will never be needed. A large group of people pool their money playing the odds that if they do need it, the money will be there from those who didn’t have a claim. The disability insurance of Social Security works the same. Everyone contributes so those who become disabled can survive. Under a plan of private investments, who will provide for those on disability? While you may not need it now, what if in the future you or a loved one becomes disabled. What will happen to those people? The wealthy may have the means for caring for disabled family members but working people do not.

The Whitewash
American Federal Government Employees Local 3937 President Steve Kofahl, who represents Social Security workers, recently testified that previously their employees have shared information with the public about Social Security’s financial condition. Historically they had never taken sides in political issues. However, the Bush Administration is pressuring Social Security employees to promote the idea that Social Security is in trouble and that private accounts are the only answer.

In addition, the White House has launched a fund raising campaign among its supporters to promote the idea. One coalition of Fortune 500 companies alone recently donated $5,000,000 to the effort.

We need to notify our elected officials and tell them we are opposed to dismantling Social Security in favor of private accounts. Our elected officials are:
Alabama
Congress
Robert Aderholt
Phone 256-350-4093
or 202-225-4876
Bud Cramer
Phone 256-355-9400
or 202-225-4801
Senate
Richard Shelby
Phone 256-772-0460
or 202-224-5744
Jeff Sessions
Phone 256-533-0979
or 202-224-4124
Tennessee
Congress
Lincoln Davis
Phone 931-490-8699
or 202-225-6831
Senate
Lamar Alexander
Phone 615-736-5129
or 202-224-4944
Bill Frist
Phone 615-352-9411
or 202-224-3344