Private companies are not really set up to provide the kind of long-term financial protection that Social Security programs provide, speakers said today at a hearing on Capitol Hill.
Rep. Earl Pomeroy, D-N.D., chairman of the House Ways and Means Committee Social Security subcommittee, organized the hearing to commemorate the 75th anniversary of the enactment of Social Security.
Some economists have suggested that the government ought to try to improve the finances of Social Security by taking steps such as increasing the normal retirement age or reducing inflation-based benefits adjustments.
“Several years ago, the American public overwhelmingly rejected President Bush’s flawed plan to take money out of Social Security and put it into private Wall Street accounts,” Pomeroy said, according to a written version of his remarks posted in the Social Security hearing section of the Ways and Means website. “Some have recently dusted off those ideas and sanitized the descriptions with names such as ‘progressive price indexing’ and esoteric discussions about benefit computations. But this cannot hide the unambiguous truth that if enacted, my children would have Social Security payments replacing about one-fifth to one-third less of their wages when they retire than I would.”
Kelly Ross, deputy policy director at the AFL-CIO, Washington, argued that Social Security is still stronger than the other “legs of the three-legged retirement stool” – personal savings and employer-provided pensions.
Few workers can afford to save on their own, most employers have dumped traditional pension plans, and many of the employers that offer 401(k) plans and other defined contribution retirement plans have eliminated the employer matching contributions, Ross said.
Social Security faces a modest projected funding shortfall over a 75-year period, but, if it were a private multiemployer pension plan, it would be in the “green zone,” meaning that it would be considered to be in good health, Ross said.
Nancy Altman, co-director of Social Security Works, Washington, suggested that policymakers could improve the finances of Social Security by increasing the percentage of withholding taxes, letting Social Security investment some assets in broad-based stock funds and Treasury bonds, and giving estate tax revenue to Social Security.
The percentage of total U.S. wages subject to federal withholding taxes has fallen to 84%, from 90% in 1983, Altman said.
Increasing the coverage percentage would help Social Security without having much noticeable effect on taxes, Altman said.
In 2010, the increase would amount to $130 for an individual earning about $106,800, Altman said.
Altman said leaving the estate tax at the 2009 level and earmarking proceeds for Social Security would help the program recover from the decision made early on to let retirees who had not spent much time paying into the new program collect retirement benefits anyway.
“Social Security’s startup costs have never been amortized, and continue to be, in effect, a drag on the system,” Altman said. “These costs should be paid, at least in part, from a progressive tax, which includes capital as well as labor, rather than being met solely by the contributions of future workers and their employers.”
Requiring the wealthy to contribute a portion of their fortunes to the common good is fair because “the accumulation of large estates is dependent, in part, on the general productivity of the American economy and its infrastructure, including, for example, roads, police, and education,” Altman said.
Ethel Zelenske, co-chair of the Social Security Task Force at the Consortium for Citizens with Disabilities, Washington, testified that private disability insurance is not a good substitute for the Social Security Disability Insurance program.
For a young average earner with a spouse and two children, Social Security survivor and disability benefits “now equal a life insurance policy worth $476,000 and a disability policy worth about $465,000,” Zelenske said. “Very few young workers can afford to buy this amount of private insurance.”
Only about 30% of private-sector workers have long-term disability insurance, Zelenske said.
“Compared to Social Security, individually purchased private disability insurance generally is not adjusted for inflation, is not designed to cover children of disabled workers, and is not available to workers with disabilities and other health problems,” Zelenske said.