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U.S. Congressman David Price View On North Carolina Social Security Reform
Social Security and Retirement Benefits: Earlier this year, President Bush made a trip to Raleigh to promote his plan to privatize Social Security. I oppose his plan to transform Social Security into a system of private accounts, because the plan leaves many workers -- especially younger workers -- significantly worse off. It appears that President Bush is no longer pushing this plan, but I believe it is important for constituents to stay informed and to understand what is at stake in this complicated issue.
ANSWERS TO YOUR QUESTIONS ABOUT SOCIAL SECURITY
What exactly is the President proposing?
President Bush has recently revised his benefit cut package to reflect a sliding-scale approach. A sliding scale would result in less dramatic cuts in promised benefits for the average worker than his original proposal based on pure price-indexing (closer to 21% for the average American worker making $35,000 a year, as opposed to 45% under his original plan). But the only reason the new cuts are less dramatic is because his new plan would address only 57% of the Social Security shortfall, whereas his old plan addressed 100%. The President has still not told us how he plans to make up the remaining shortfall, but he’ll will either have to further reduce benefits or raise taxes.
One more important item to note: Although the poorest Americans would not see their benefits reduced under the President's new plan, everyone making over $20,000 a year would still have their benefits cut. In fact, it is the middle class would lose the largest proportion of their retirement income under the President's new proposal.
Will I make more money with my private account than I would under Social Security as it exists now?
Using the nonpartisan Congressional Budget Office's (CBO) risk-based estimate of future returns on investments in stocks and bonds, a private account would leave a retiree no better off than someone who decided not to use them. In large part, this is due to the requirement in the president's plan that workers repay all of the payroll taxes diverted to their private accounts, plus interest, through a further reduction in the worker's guaranteed retirement benefit. In essence, this would be the equivalent of imposing a 50-80 percent tax on the value of the private account at retirement, depending on how much the account has earned over time. Private accounts will simply do nothing to restore the drastic cut to guaranteed benefits that the president has in mind.
Will privatization help or hurt the economy?
The president's plan would have the effect of adding $1.4 trillion to the national debt over the first ten years of the program and nearly $5 trillion over the first twenty years, significantly raising interest costs on the national debt. Furthermore, his plan would move up the date by which annual Social Security benefit payments are expected to exceed annual revenues by six years and would move up the date by which the trust fund would be unable to pay 100 percent of benefits by 11 years.
Our ability to deal with the problems facing the Social Security program has been compromised by the growing annual budget deficits of the past few years, which have been driven to a great degree by tax cuts primarily benefiting the wealthy. For example, if the short-term tax cuts from the last few years for those with an annual income of over $500,000 were allowed to expire (instead of being made permanent), the additional revenue would ensure Social Security's solvency well into the next century.
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