Sunday, March 15, 1998

Privatizing Social Security is a step backward, not forward

By Glyn Hammons

On Feb. 5 the Opinion page had an article by Robert W. Tracinski, senior writer for the Ayn Rand Institute, "Is Social Security moral?" Tracinski makes misleading and inaccurate statements about Social Security in an attempt to make a case for privatizing the system.

He assumes surplus funds are loaned out, never to be returned. Instead, they are invested in government securities at a competitive interest rate (7.6 percent in 1995, for example). By law, these funds, with interest, must be paid when needed, just as payments are made to an individual or company holding bonds or other government securities.

He uses an example of a 25-year-old being promised a retirement pension for 7.65 percent of each year's salary, plus a matching amount from the employer. This implies the full tax rate on employee and employer goes to pay retirement benefits. In reality, 1.45 percent of the tax is used to pay for hospital coverage under Medicare, .94 percent is used to pay benefits to disabled workers and dependents and about .92 percent is used to pay survivor benefits. This leaves a tax rate of 4.34 percent on earnings with a matching amount from the employer to pay retirement benefits.

The taxes paying for Medicare, Disability and Survivor benefits would barely be enough to pay for the extra private health, disability and life insurance you would need with a privatized system.

Tracinski states that "a worker born in 1955, who makes just over $24,000 a year, will receive $268,000 less than what he and his employer paid in." This statement is simply not true.

A worker and his employer would only pay in a total of $151,200 if he earned $24,706 per year (the average wage in 1996) for 40 years. By taking out the portion of the tax that goes to pay Medicare, Disability and Survivor benefits, the total paid in over a 40-year period would be $84,960. With a monthly benefit of $900, a retired worker would draw out all of the $84,960 in just under eight years. With an eligible spouse, the couple would draw it out in just over five years. This means that at this retirement benefit level they would receive much more than they paid in if they lived to the average life expectancy age.

In addition, there are a number of facts that should be considered:

n Millions would choose to use their money for current expenses rather than investing it for retirement, causing welfare rolls to begin to swell.

n Many would not make wise investments and would wind up with little or no retirement income.

n Those retiring when there is a downturn in the stock market might get much less than others.

n Social Security is not about to collapse as Tracinski suggests, and with some careful fine tuning it can continue as the stable, dependable benefit program it has been for more than 60 years.

n Since Social Security was always intended to only partially replace earnings lost at retirement, private investments should still be made to supplement Social Security.

n Privatization would be extremely costly for at least the next 50 years because we would have to try to support dual systems until our obligations to those under the current system have been completed.

Social Security is currently paying benefits to more than 43 million people. It has been and continues to be the most successful social program this country has ever known. We need changes to make it better and should not even think of scrapping Social Security for total privatization.

M. Glyn Hammons is retired Abilene Social Security district manager and volunteer advisor to the National Committee to Preserve Social Security and Medicare.