Relentless and ominous, the drumbeat echoes across the land: Social Security is on the verge of bankruptcy. The warning has been repeated so often that it has become a dismal article of faith for the millions of Americans who pay Social Security taxes and expect to collect benefits someday. But it is flatly untrue. Social Security today is as financially strong as it has been in decades. Despite its relative good health, however, it is facing the most dangerous political challenge to its existence since its birth 70 years ago. The Plot Against Social Security explains who is really behind the efforts to "reform" this system and shows that the most frequently proposed fix -- diverting a huge portion of its assets into private investment accounts -- will damage it beyond repair, undermining retirement security for generations of Americans.

Award-winning journalist Michael Hiltzik documents the privatization lobby's ties to the brokerage and insurance industries that stand to profit from the proposed changes. He debunks the myths disseminated by Social Security's enemies, repeated by rote even by its friends and now accepted as gospel by many Americans -- including claims that the retirement of baby boomers will plunge the system into bankruptcy; that the $1.7 trillion in government securities held by the Social Security trust fund are worthless pieces of paper; and that workers can earn better returns on their payroll tax contributions by investing them privately than by leaving them in the system. Finally, he offers a clear set of remedies for those few elements of Social Security that do need repair -- proposals that will shore up the most effcient social insurance program in America's history rather than destroyingit in the name of reform.

The Plot Against Social Security

How the Bush Plan Is Endangering Our Financial FutureBy Michael A. Hiltzik

HarperCollins Publishers, Inc.

Copyright © 2005 Michael A. Hiltzik
All right reserved.
ISBN: 006083465X

Chapter One

The Bush Blitz

On January 11, 2005, President George W. Bush perched himself on a stool onstage at the Andrew W. Mellon Auditorium in Washington, flanked by a few dozen ostensibly ordinary American citizens.

Addressing his audience from beneath the gilded colonnade of the grand old government hall, he thanked them for coming that day "to talk about one of the great causes of our generation, and that is how to strengthen and save Social Security for generations to come." Gripping a plump microphone and speaking in his characteristic tone of folksy earnestness before a national television audience, he reiterated his already familiar admonition that the national pension and disability program was mortally ill. His onstage companions, including a young Utah dairy farmer, an ambulance company operator from the state of Washington, a Maryland businesswoman and her elderly mother, and a bright young official from the Social Security Administration itself, listened raptly as he warned that Social Security might well not exist when the time came for them to retire.

"If you're twenty years old, in your mid-twenties, and you're beginning to work, I want you to think about a Social Security system that will be flat bust ... bankrupt, unless the United States Congress has got the willingness to act now," he said. "And that's what we're here to talk about, a system that will be bankrupt."

The best way to protect themselves from that dreadful outcome,he said, was to keep some of the money they were payingeach year into this rickety Depression-era system and invest it bythemselves, for themselves. And he was determined to push alaw through Congress setting up a system of private retirementaccounts that would enable them to do exactly that.

George Bush had been thinking about Social Security reform atleast as far back as his tenure as governor of Texas, when he hadinvited experts to his ranch to chat about the program's future.He made reform a major plank in his 2000 presidential campaign,and became convinced that his endorsement of private accountshad been an essential factor in his electoral victory. Onceinaugurated, he promptly made good on his campaign rhetoricby appointing a blue-ribbon reform commission to craft a privatizationplan. But as a domestic policy initiative Social Securitygot overwhelmed by the 9/11 attack and, subsequently, by theIraq war.

Immediately following his reelection, however, the presidentlaunched a blitzkrieg on Social Security. In nationally televisedspeeches, appearances before blue-ribbon White House economicconferences and interviews with trusted journalists, Bush, renowned for his ability to stay "on message," delivered thegospel of radical reform, often repeating the same phrases byrote. The centerpiece of this program was a system that wouldallow workers to withhold a few percentage points of the 12.4percent payroll tax from the system and invest the money ontheir own. The reform would relieve Social Security of its crushingdeficit, he contended, while giving every American a personalretirement stake that could be bequeathed to survivors. "At thesame time that you manage your own account, you own yourown account," the president proclaimed to the Mellon Auditoriumcrowd. "I love promoting ownership in America."

Administration officials and Republican legislators fannedout to the Sunday TV talk shows to warn of the imminent crisisand pitch privatization as the solution. Callers to the Social SecurityAdministration's help line heard not music while they languishedon hold, but messages warning of the program'slooming insolvency and the necessity of hasty, dramatic change.White House fundraisers started to squeeze their most dependablecontributors to pay for a television campaign budgeted at acool $100 million. The campaign's architects billed the effort toremake Social Security as "one of the most important conservativeundertakings of modern times" and "one of the most significantconservative governing achievements ever."

Their goal was no less than to dismantle one of the last survivingedifices of the New Deal.

President Bush has called his proposed policy "a promise toreform and preserve Social Security."

In fact, his proposal would neither reform nor preserve SocialSecurity. In the name of preservation, it would destroy thenation's most comprehensive social insurance program and replace it with a system bearing enormous costs and risks for millionsof workers and retirees.

The Social Security privatizers dress up their proposal withthe premise that all Americans will be able to earn annual investmentreturns in the stock market of 7 or 8 percent a year,after inflation -- a figure that makes the putative return on SocialSecurity payroll taxes look paltry indeed. The market will makeevery American owning a private account a millionaire upon retirement,they say. (The New York Times headlined a recent op-edpiece on the topic by former treasury secretary Paul O'Neill, adevout privateer, "Who Wants to Be a Millionaire?")

What they don't tell you is that many economists questionthe likelihood of consistently earning such a return from stocks.In fact, they say it's almost impossible. For U.S. equities to turnin that kind of performance over the next several decades, theoverall U.S. economy would have to grow at a pace that, all byitself, would place Social Security on the strongest fiscal footingin its history -- not only far from bankrupt, but rich enough tobail out the rest of the federal government. (This is according tothe Social Security system's own estimates.)

The privatizers don't mention, moreover, that the new systemwould require such complicated administrative oversight that theSocial Security Administration, perhaps the most efficient arm ofthe federal government, would have to hire as many as 100,000new employees. (This estimate comes from an executive at FidelityInvestments, which favors private accounts.) Account managementfees -- which would flow to some of the same financialservices companies backing the privatization campaign -- wouldeat up a good portion of the workers' savings ...

Continues...

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