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Social Insecurity

Dear ETS Editors:

I was very pleased to read your recent article on issues surrounding the potential privatization of Social Security (ETS! #2-44, July 22 1998) and particularly with your suggestion that the SS payroll tax have a bottom, but no top, limit. Your analysis of the hows and whys of privatization was excellent, but I would like to say that you omitted what I consider some very important information.

Very few persons know the history of SS and why it was set up as it was. As a result they don't know where the money goes and can often, as is done on a regular basis, fall into the trap of believing that somehow SS is set up as a "war" between generations.

According to "The Nation" (01/27/97) and "The Progressive" (06/08/98) privatizing only 5% of Social Security taxes would dump $150 billion/year of new money into Wall Street and the Financial Investment Industry. The management fees alone would be upwards of 13%, and even as high as 20% in some instances. Total privatization would give Wall Street 400 billion/year to play with. The privatization proposal favored by Wall Street would cost $240 billion in investment management and administrative fees between 1999 and 2010. This is in sharp contrast to the present administrative management costs under the Social Security Administration, which are 0.8%.

The following was excerpted from an article written by Nicholas Syracopoulos, an expert on Social Security who was an administrator for the SS Administration from 1938-1951 and helped author some of the 1950 Amendments to the SS Act.

The essence of Social Security is that it is a social insurance program.

It is not a savings account. It is not an annuity, whereby you have a claim on what you pay in. It is not a pension program/retirement fund where you receive a semblance of what you/your employer contribute. Social Security is an insurance program where the contributions are made according to ability-to-pay and the payments are made according to a presumed need.

This reflects the original intent of the Social Security Act and it is the reason why the amount paid out to each worker is not based on the amount that the worker paid in.

A few examples may clarify the above definition. A highly-paid worker, who has contributed significant amounts to the system over 40 years, dies at the age of 64, leaving no minor children and no widow. His estate receives a paltry $200.00 burial allowance. This is because the system is not intended to build up personal estates. It was intended to fulfill a "presumed need," which, in his case, is none. However, if a young worker, who contributed modestly during the first ten years of his working life, dies leaving a 30-year-old widow and two children, ages 2 and 4, each of these children will receive a monthly benefit until it reaches the age of 18 years and the widow will receive a monthly benefit as long as either minor child is in her care. This bereft family will probably get back the worker's contributions in the first year-and-a-half, but the benefits will still continue for 16 more years. This is because the system is based on "presumed need" and Social Security insures that the need will be met.

The principle of presumed need is also carried out in the retirement period. The benefit formula for retirement is skewed in favor of the lower-paid workers. If the benefits were equitably computed, the lower-paid workers would receive such a small benefit that they would not be able to afford food, let alone rent. In a system of equitable distribution, the higher-paid workers would receive a very substantial sum, for which, after a life-time of high wages, there is no "presumed need."

It is again important to remember that Social Security is an insurance program, not a retirement account, and, as with all other insurance programs, a person pays regular premiums but does not get any "benefits" unless there is an occurrence such as a home burning down or an automobile being wrecked, that creates a need for benefit payment.

As the Social Security formula now stands, low-wage earners may receive a retirement benefit of almost 70% of their average wage, whereas highly-paid workers receive close to 27% of their average wage. When Social Security was enacted into law, one purpose of the "social" aspect of Social Security was to prevent elderly persons from living in dire poverty. In the 58 years that it has been paying benefits, Social Security has succeeded admirably. Today, the elderly are the demographic group which has one of the lowest poverty rates of any group in this country.

With Social Security, only about 11% of our elderly population lives below the poverty line. According to the Bureau of the Census, if we did not have Social Security, more than 55% of our elderly would be living below the poverty line. The "social" aspect of Social Security is the reason they are not living in poverty. Thus, Social Security allows retired workers and their spouses to age with some financial security without having to force their children to shoulder the financial burdens of supporting them.

The Social Security system can survivie only if the "social insurance" aspect is retained. Any effort to allow the diversion of part of the contributions into private accounts would mean that the more highly-paid workers could and would opt for that alternative in order to keep more of their contributions to increase the size of their personal estates, regardless of need. This would build up estates, but it would make it impossible for the lower-paid workers to receive a living retirement benefit. If diversion of part of the Social Security Tax into personal accounts were permitted, Social Security benefit payments would exceed the amount paid into Social Security, not in the year 2032 as is now anticipated, but in a few years; and, at that point, the system would start going down the drain.

Social Security has had almost 60 years of successful operation. At present the SS Trust fund contains more than $600 billion, and the Trust Fund, under the present system, will continue to grow for another 14 years. The Trust Fund exists in Government Bonds which are the soundest investment in America and have averaged about 7% return a year. Almost 30% of the benefits that Social Security pays go to minor children, surviving spouses with minor children in their care, and younger workers who are disabled.

While you did write of the present cap on SS tax, I think some readers might not fully understand what the effect of removing the present cap at $68,400. This would mean that Bill Gates, for instance, instead of paying $4,240.80/year in Social Security Tax in 1998, would pay about $1.25 million (assuming that only $20 million of his total humongous income was wages). Considering the thousands of people who now report million-dollar incomes, this would go a long way toward keeping the system going without raising the retirement age, cutting benefits or eliminating the COLAs [cost-of-living-adjustments].

Thanks again for addressing this issue.

--Thalia Syracopoulos, Seattle

Third Network From The Sun

Dear ETS!:

ABC News currently has on the web a series of really disgusting articles about U.S. jails. The current article is the second of a "five part series." Maybe you're getting these via other media, but in Germany I only get this garbage via the web:

(http://www.abcnews.com:80/sections/us/DailyNews/nlpt980806_prisons1.html and connected links)

I don't have enough factual information to write them a good letter on my own, but I am sure you know individuals and NGOs who can do this, and I am really hoping they will. Note in particular the "Profit & Punishment" article about privately-run prisons.

Regards, and thanks for your wonderful publication.

Dr. Mariza C. Costa-Cabral, Geesthacht, Germany

Send Cards And Letters

Dear Editor:

Geov's August 26 piece (and discussion of the same on Eat the Airwaves the preceding Saturday) about the planned execution of Jeremy Sagastegui was excellent. Geov has an exceptional talent for crisply getting the point across: regardless of the show-trial nature of Sagastegui's court proceedings, the lack of meaningful evaluation of his competence to represent himself, the legal validity of not offering mitigating evidence to the jury which sentenced him to death --the state should have no right to execute anyone. Period.

Governor Locke has declared himself a strong supporter of capital punishment and it may take a lot of work to dissuade him from presiding over his first execution. Nevertheless, the law in this state gives the governor the right to commute, for any reason, an execution to life-without-parole. Contact the governor at any of the following:

Governor Gary Locke, Office of the Governor, PO Box 40002, Olympia, WA 98504; phone: 360-902-4111; fax: 360-753-4110; e-mail: Governor.Locke@Governor.wa.gov.

Sincerely yours,

William Kreuter, Washington death penalty abolition coordinator, Amnesty International, Seattle

Wouldn't That Be Nice!

ETS!,

What is it with you guys? You act like Bill Gates' money comes right out of your pocket!

-- C. G. Knix, via e-mail