President Bush’s plans for revamping the Social Security system, still being unleashed, have raised
questions about the future of the system under the proposed changes and have sparked a flurry of debate across the country about the state of the
current system.
Bush touted his reform plan during his Feb. 2 State of the Union address, and this past weekend wrapped up a brief five-state tour dedicated to promoting the plan.
Under Bush’s proposal, workers would have the option of diverting up to two-thirds of their payroll taxes into a private account that could be invested in stocks and real estate rather than contributing to the Social Security trust fund.
Created in 1935, the Social Security system was designed to provide an assured retirement fund to all workers. All employees and their employers in the United States pay a 6.2-percent tax that goes to the trust fund.
The Congressional Budget Office predicts the trust fund will be depleted by 2018, leaving a pay-as-you-go system that, by 2052, will only have enough funds to provide about
73 percent of the promised benefits. The Social Security Board of Trustees predicts that will come in 2042.
“With each passing year, fewer workers are paying ever-higher benefits to an ever-larger number of retirees,” Bush said in his Feb. 2 address. The administration claims the current system is in crisis, and the only way to salvage it is through reform.
Rep. Peter DeFazio, D-Ore., refuted this claim during a town hall meeting Saturday morning at the Eugene Water and Electric Board Training Center and Community Room, saying Bush’s proposal will do nothing to the Social Security system except “accelerate its depletion time.”
DeFazio held a series of town hall meetings Saturday and Sunday across Oregon to give citizens a chance to ask questions about Bush’s proposal and hear DeFazio’s own proposal for Social Security.
DeFazio’s plan for Social Security would lift the tax cap from $90,000 to $94,000, meaning anyone making less than $94,000 would have to pay Social Security taxes. The increase in taxes would be more than enough to cover the projected shortfall.
“The power elite does not like my idea,” DeFazio said in a phone interview.
More than 300 people attended
the meeting and about 100 were turned away because the room was filled to capacity.
DeFazio fielded questions and urged attendees to write letters to the White House voicing opposition to Bush’s Social Security outlook, which he said is based on the most pessimistic of economic assumptions.
DeFazio’s argument is that the Congressional Budget Office’s statistics do not signify a crisis, and the shortfall that has been projected to happen in about 40 years could easily be quelled with minor changes to the
existing system.
DeFazio had various charts and a packet of handouts explaining his view on Bush’s Social Security proposal and detailing his own.
DeFazio said Social Security is a crucial program in the United States: “That’s why I want to, beyond a doubt, provide assurance that it will be there.”
Eugene resident Charles Fischer called a chart DeFazio used to explain the reduction in benefits that would occur under Bush’s plan misleading because it fails to take into account the amount of money that would be diverted to the proposed personal
retirement accounts.
Fischer, an investment adviser with IMS Securities Inc. in Eugene, said in an interview that he feels both
political parties have been misleading the public with distorted information about the Social Security system and the different reform proposals.
“We need to have a real honest debate and pull ideas from both parties,” Fischer said Monday.
Fischer said it is wrong to say the system is not in crisis when the trust fund will be depleted in less than
15 years. The assets needed once the trust fund is gone are not there, Fischer said — they only exist in the form of government “IOUs.”
“The federal government has taken all the money out and spent it,” Fischer said. “To claim that the money is there is wrong.”
DeFazio said the claim that the money is not there fails to consider the true meaning of a government bond.
“If you believe the United States is still going to have a government, that the U.S. is still going to exist in the next 40 years, then there should be no doubt in your mind that Social Security will be there,” DeFazio said in a phone interview.
University political science professor Joel Bloom said the claim that a depleted trust fund will put the Social Security system into a crisis is
an erroneous one that ignores reasonable thinking.
“If you can’t count on government bonds, then the entire national debt is worthless,” Bloom said.
DeFazio said the methods used by supporters of Bush’s proposal to explain the crisis the system will undergo are illogical and aimed at manufacturing a crisis when one does not exist.
Fischer said DeFazio’s plan to raise the tax cap is not an adequate way to tackle the problem and ignores the fact that if the economy does grow, wages will increase, which will subsequently increase Social Security benefits and accelerate the trust fund’s depletion rate.
But opinions on the state of the system differ greatly, as some say that, with inflation rates and economic growth considered, the amount
of benefits that will be available in the system will never fall below inadequate levels.
“Even without a trust fund in 2042, even with only getting
70-something percent of the promised benefits, you guys, your generation, is still going to get more money than your grandparents are getting right now, and that’s
supposed to be a crisis,” Bloom said.
The President said last week his plan would not solve the Social Security system’s projected financial problems but added that doing nothing would do even more harm.
Fischer said many people have been disillusioned by the seemingly corporate control of the stock markets and are worried Bush’s plan for private, personal accounts would benefit investment advisers like himself. But Fischer said the accounts would be controlled by the government, leaving no room for investment advisers to benefit from them.
However, Bloom said the problem with investing money rather than contributing to the Social Security trust fund is that it will accelerate the fund’s rate of depletion and allow for risky investments that could jeopardize an individual’s retirement savings.
“It’s inherently more risky.
Nobody knows what the stock
market is going to do between
now and four years from now,” Bloom said.
The cost of setting up these
private accounts is also up for
debate. Critics have also questioned how private accounts will affect those dependent on Social Security for disability and survivor benefits.
Bush has not said how diverting money from the fund will affect the amount of benefits available to those dependents, DeFazio said.
The debate over Social Security is expected to rage for many months as the President continues to unveil his plan. DeFazio vowed to hold more town hall meetings after Saturday’s meeting drew more attendees than any previous town hall meeting.
Fischer said he is hopeful both parties can forgo their political
ideologies to examine the state of the system and form a game plan for the future.
“Instead of Bush out there
supporting the PRAs at this point and DeFazio saying we don’t have a problem, we need to start from square one,” Fischer said.

[email protected]