Proposal to privatize Social Security rears its ugly head again
Ghosts have nothing on some of the ideas that come out of Washington when it comes to rattling chains and knocking pictures off the wall to terrify the common people.
Case in point: the privatization of Social Security.
One would have thought that this proposal was done in by two major stock market crashes since 2000, not to mention the generally noisome odor arising from almost everything that Wall Street has touched in recent years.
Yet ever so stealthily it’s creeping back into the public debate via the presidential campaign. Both members of the Republican ticket, Mitt Romney and Rep. Paul D. Ryan (R-Wis.), have expressed great enthusiasm for the idea in the past; in 2004, Ryan even sponsored a bill in Congress that was so reliant on private accounts that it was rejected by the Bush White House as too extreme.
Vice President Joe Biden entered the lists last week. At a campaign stop, he announced, “I guarantee you, flat guarantee you, there will be no changes in Social Security.” That’s as ringing an endorsement of the program as any uttered by a politician in years.
Biden’s words heartened Social Security advocates who have gotten accustomed to waffling from the Obama White House over whether cuts in Social Security might be part of a “grand bargain” with congressional Republicans on the federal deficit. Though it’s never entirely plain when Biden is talking off the cuff as opposed to expressing administration dogma, they’re taking his statement at face value.
“The good news is they haven’t been walking it back,” Roger Hickey, president of the progressive Campaign for America’s Future, told me. He observed that the last time Biden was thought to have spoken out of turn, by endorsing gay marriage, Obama promptly followed his lead.
The question is where Romney and Ryan stand. Social Security has been part of both men’s policy baggage over the years. Indeed, Romney might be the major party presidential candidate most hostile to Social Security since Barry Goldwater ran in 1964. In his 2010 book “No Apology,” Romney labels the program “out-of-control,” a “terrible … burden” on future generations, and effectively a fraud.
In the book, Romney endorses partially privatizing Social Security through individual investment accounts even though, as he acknowledges, “The 2008 stock market collapse is proof … that we can’t always count on positive returns from these investments.” He says he prefers that private accounts be added to, not carved out of, Social Security, but doesn’t explain how that would help Social Security’s finances.
The crash, Romney maintains, “is not, as some critics claim, proof of the folly and danger of individual accounts.” Rather, it’s evidence that a privatized system would have to be “phased in over time” so that market volatility doesn’t “endanger a secure retirement.”
Yet phasing in privatization wouldn’t protect account holders from a sharp downturn — the crash of 2008 would have stripped nearly 60% from retirement investors’ stock portfolios whether they had built up their nest eggs by “phasing in” or all at once. If you’d been about to retire on that hoard, your plans got changed in a hurry.
The real privatization theorist on the Romney team is Ryan, who in 2005 cosponsored the “Social Security Personal Savings Guarantee and Prosperity Act” with Sen. John E. Sununu (R-N.H.). Their proposal was remarkable not merely for its rosily imagined post-privatized world, but for how much it prefigured Ryan’s later “reform” of Medicare. Though it purported to solve the deficit issues of both Social Security and the federal government, the plan in fact would have exploded the deficit.
The Social Security plan would have turned over management of Americans’ retirement assets to private firms, just as the Medicare plan bows to private health insurers. The Social Security proposal would have awarded management of roughly half the program’s annual inflow to Wall Street brokers and bankers, who would have been reaping fees and commissions on a torrent of about $275 billion a year to start.
Americans would be permitted to invest as much as four-fifths of their Social Security taxes in private individual accounts that could be invested in stocks and bonds. (The average permissible diversion would amount to just over half of the program’s tax income.) The government would encourage maximum participation by guaranteeing that no matter what happened to their money in the investment markets, no one would end up with less than they would have received from conventional Social Security. Any shortfall would be made up from the federal budget.
In the sponsors’ words, the plan would “greatly increase and broaden the ownership of wealth and capital.... All workers could participate in our nation’s economy as both capitalists and laborers.” But their plan put the entire government on the hook for every individual’s investment losses.
Ryan and Sununu crowed that the Social Security actuaries agreed that implementing this workers'-paradise plan would make the program solvent permanently. That was true, but chiefly because the plan required the government to transfer enough money every year to Social Security to maintain its solvency.
How much would that cost? Some $79 trillion (in 2004 dollars) over the period 2004-78. As a proportion of the U.S. economy, that would be more than twice what would be required to keep a non-privatized Social Security solvent, according to an analysis at the time by the nonprofit Center on Budget and Policy Priorities.
And that was if investments kept up with the Ryan-Sununu scenario. If they fell short and had to be backstopped by the government, the picture was more dire. The cost of guaranteeing benefits could reach $660 billion a year (in 2004 dollars) by 2078.
The CBPP concluded that what the sponsors presented as “a proverbial ‘free lunch’” was in fact a budget-busting hand-over to private enterprise masquerading as entitlement reform.
The Ryan-Sununu plan was scrapped in favor of a proposal ginned up in 2005 by a commission created by the Bush White House. That proposal failed when Congress got panicked by voter outrage.
Things have changed. Seven more years of relentless conservative slanders about Social Security’s future may have numbed the public into accepting some change in the program, no matter how unwise. The Washington Post, in an editorial rebuking Biden for his pledge, repeated a lot of the malarkey as if it were gospel.
Social Security is “going broke,” the Post said. (Not remotely true.) It suggested that the program could be fixed with a “tweak” to cost-of-living formula for recipients, saying this would do “no harm to the safety net.” In fact, the “tweak” would pare three-tenths of a percent from the inflation adjustment per year, cutting benefits increasingly and relentlessly over time — the very definition of an attack on the safety net.
These sorts of “tweaks” play into the Ryanites’ hands. “When you cut Social Security you’re encouraging privatization, because people have to go to the private market to make it up,” observes Eric Kingson, co-director of the advocacy group Social Security Works.
That’s the fearsome thing about the unfolding election: If you’re not vigilant, you may end up with a privatized Social Security before you know what’s happened. So keep your eyes open, and your hands on your wallet.
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at email@example.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.
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