GOP still wants to privatize social security

It looks like House Republicans are at it again. Apparantly they are not satisfied with their efforts to block an increase in the federal minimum wage and their pushing for a repeal of the estate tax, which would deprive the government of billions that currently go to programs that help the neediest Americans–thus raising wages, but effectively defunding programs such as Medicaid, the Veterans Administration, and Social Security. It looks like another part of their legislative agenda includes privatizing Social Security. Only problem is that Social Security doesn’t need to be privatized. While reform is indeed necessary, the changes that need to be made can be in the form of relatively small adjustments (such as, for example, eliminating the SS earnings cap), not a wholesale restructuring of the entire program.

As Josh Marshall has previously written in The Hill, what was going on last year wasn’t really a debate about “saving” Social Security or ensuring its long-term solvency. It was really a debate on whether to keep Social Security or phase it out and replace it with a system of 401(k)-style private accounts. It was a losing issue for the GOP in 2004 and it will be a losing issue again this year.

Courtesy of Think Progress:

Boehner Pledges To Privatize Social Security: ‘We’re Going to Get Serious About This’
In an interview with the Washington Times published yesterday, House Majority Leader John Boehner (R-OH) promised to privatize Social Security:

Q: Where does Social Security reform stand?

A: I just met with Congressman [Frank R. Wolf, Virginia Republican], a few minutes ago with his SAFE Commission [formed to fix the entitlement programs]. In 1990 when I first ran for Congress, I talked about the need to reform these big entitlement programs because the sooner we began the process, the easier it would be to make the necessary changes so that these programs were sustainable for the long term. … If I’m around in a leadership role come January, we’re going to get serious about this.

Time for a reality check. There is absolutely no need to privatize social security. It’s a “phony crisis” in the words of economists Marc Weisbrot and Dean Baker. According to Josh Marshall, it’s a scam all the way around.

For more background on the real issues behind Social Security and the bogus arguments made by the GOP, check out this definitive issue Guide from the Economic Policy Institute. It contains a wealth of information and tons of informative links. In particular, be sure to read page 36 of the report, which analyzes the fallout that would result from privatization.

Citing a study by respected Yale economics professor Robert Schiller at CBPP, we learn that:

“[T]he returns to life-cycle portfolios [the GOP proposal to balance risks and returns by defaulting younger workers into a higher stock allocation and then shifting more towards bonds as workers approach retirement] are considerably lower than the rates of return typically used by the Social Security actuaries in evaluating returns for personal accounts that do not have the lifecycle option. In addition, life-cycle portfolios are considerably riskier than what some would think.

By suggesting that the life-cycle portfolio is the recommended portfolio for everyone, the plan neglects the variability across workers of economic situations, and of psychological barriers to good financial planning: given the risks, the plan could be disastrous for some workers.”

The Center for Economic Policy Research has a useful backgrounder entitled “Basic Facts on Social Security and Proposed Benefit Cuts/Privatization”.

To get an idea of how Social Security privatization has impacted the economy and benefits in other countries, read this report from the non-partisan Congressional Budget Office.

Finally, for some idea of how Wall Street bankers will reap billions of dollars in management fees, see this and this.

If the GOP goes ahead with this, it’s essential for Democrats to aggressively oppose their efforts, and perhaps turn it (along with raising the federal minimum wage) into a winning political message for the midterm elections in November.

Update: Washington Monthly notes that new Treasury Secretary Hank Paulson seems keyed in to the Social Security privatization fight Bush seems to be spoiling for. Speaking to students at Columbia Business School, he also made some other nonsensical remarks:

“Paulson said the slow growth in take-home pay was simply an economic reality “and it is neither fair nor useful to blame any political party.”

“Rather than playing the blame game, we must focus on helping workers move up the economic ladder,” Paulson said….If economic growth continues and productivity stays strong, income growth will eventually follow, he said.”

As Kevin Drum notes: “I wonder how long he thinks we should wait? We’ve had economic growth and strong productivity gains for the last 30 years or so, but we still don’t have the promised increases in take-home pay. So here’s an idea: In the same way that waiting another six months for progress in Iraq is now called a “Friedman,” perhaps another decade waiting for increases in take-home pay should be called a “Paulson.”