Straight talk on Social Security

Last week the New York Times weighed in with a lengthy article on Chile’s privatization
program. Like the one that Bush proposes, Chile’s privatization, begun 25 years
ago, lets workers choose private investment accounts instead of the government-run
safety net system. Bush has cited the Chilean plan as a model for his plans
to privatize Social Security. (Of course, he does not say "privatize"
— as Molly Ivins explains, that’s a word the Bush PR people avoid at all costs.)

Chileans have found that the private pension system doesn’t work. Here’s one
example:

"Dagoberto Sáez, for example, is a 66-year-old laboratory technician
here who plans, because of a recent heart attack, to retire in March. He earns
just under $950 a month; his pension fund has told him that his nearly 24 years
of contributions will finance a 20-year annuity paying only $315 a month.

"Colleagues and friends with the same pay grade who stayed in the old
system, people who work right alongside me," he said, "are retiring
with pensions of almost $700 a month – good until they die. I have a salary
that allows me to live with dignity, and all of a sudden I am going to be plunged
into poverty, all because I made the mistake of believing the promises they
made to us back in 1981."

Part of the reason, according to the Times, is the exorbitant fees charged
by the pension funds, which earn large profits for their services in managing
the workers’ money.

The article, "Chile’s Retirees Find Shortfall in Private Plan"
by Larry Rohter was published January 27. It is well worth reading in full.
And thanks to Rhona for reminding me that Paul
Krugman’s analysis is also informative and understandable.

January 28

Time to step back from the overheated rhetoric and take a look at what Social
Security is and is not.

Social Security is

– a program originally
designed to provide some minimal income for old people who otherwise would
be completely destitute
– a program that has, in fact, provided that guarantee of minimal income to
retired and disabled people (and their dependents) for about 70 years and
is still going strong.

Social Security is NOT

– bankrupt or anywhere near it

– a pension plan (it’s a safety net– see above)
– an investment

– equally funded by everyone.

[Want a more sophisticated economic explanation? Go to Lies
About Social Security by economist MarkWeisbrot.)

Rich people get a big break. They don’t pay a dime of Social Security tax
on interest, dividends, capital gains OR earned income over $87,900 per year.
That’s right, folks. Every dime of earned income after dollar 87,901 is FREE
of Social Security taxes. That means that if I earn $30,000 per year, I am paying
6.2 percent of my income for Social Security every year (and an additional 1.45
percent for Medicare.) But if Carl CEO earns $175,800 per year, he pays only
3.1 percent of his income for Social Security. If Max Millionaire makes $351,600
per year, he pays only 1.55 percent in Social Security. If Betty Billionaire
stays home and lives off the interest from her investments, she doesn’t pay
any Social Security tax.

Privatizing Social Security, even in part, would yield huge profits for financial
institutions while injecting a big chunk of money into the stock market. Nothing
wrong with investing in the stock market–but that’s for money you can afford
to risk, not with the rock-bottom safety net.