The Stock Market Isn’t a Savior for Social Security
President Bush’s hand-picked Social Security commission last week unanimously adopted a plan to revolutionize Social Security through private investments in the stock market. Commission Chairman Daniel Patrick Moynihan said, “It is hugely persuasive that half of African Americans have no financial assets of any kind. That’s what we’re attempting [to address], and it’s about time that we do it.”
The solicitousness of the Bush administration to the needs of poor African Americans is greatly appreciated, but many of us are skeptical. Who will forget the president’s faith-based program for churches that turned out to have no funds or programs and has been stalled in Congress?
Our skepticism also stems from Bush’s pro-millionaire tax-cut legislation, which slashed the social safety net that protects poor blacks while providing $1.3 trillion in tax benefits to the wealthy. Partly as a result of this tax cut, our nation has plummeted into a recession that is likely to erode future Social Security revenues and force the government to eventually raise the retirement age to 70.
There is a simple way to avoid having to decide between the political interests of the Bush commission and the needs of the poor. If Social Security tax coverage were extended to all earned wages, including those of multimillionaire CEOs, the threat of Social Security being underfunded 30 years from now would be eliminated. This plan could raise an additional $100 billion annually for Social Security.
But no one on the commission wanted to discuss this simple alternative, perhaps because it would adversely affect the multimillionaires who contribute so heavily to the election campaigns of both Republicans and Democrats.
Among other things, the additional $100 billion a year could be used to lower the future retirement age back to 65, thereby increasing the number of people eligible for Social Security. The retirement age has been moving up from 65; people who are now 40 cannot collect full benefits until they are 67.
Currently, there is an artificial cap on the Social Security tax; only the first $80,400 of earnings is subject to the levy. As a result, a chief executive earning $1 million a year pays less than 1% of his wages into the Social Security fund while a typical nurse, teacher, police officer or McDonald’s worker contributes more than 12 times as much on a percentage basis.
Another major questionable aspect of the commission’s proposal is its emphasis on private stock market investments as part of Social Security reform. This proposal ignores a number of recent economic and financial realities.
First, from about 1970 to 1985, the stock market was one of the worst possible investments. Even a U.S. savings bond provided a higher rate of return.
Second, up to 90% of recent investments in high-tech stocks have been wiped out over the last 11/2 years.
Third, the Bush commission has ignored the high cost of investment management fees and the widespread fraud and confusion that have plagued Wall Street for decades. Those who would suffer the most are likely to be the poor, especially if they are targeted by unscrupulous investment firms.
Recent history has demonstrated that the stock market has even outsmarted the CEOs of many Fortune 500 corporations. Given this, why should we assume that any family, much less a low-income African American family, can be fully protected?
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Mary Ann Mitchell is chairwoman of the board of the National Black Business Council. Mark Whitlock is the executive director of Renaissance, the First AME Church’s entrepreneurial arm.
