The Case Against Privatizing Social Security

The Case Against Privatizing Social Security

The Case Against Privatizing Social Security

For the New Deal’s 90th birthday, let’s deliver a cake, not a hand grenade.

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The New Deal was born exactly 90 years ago, on FDR’s Inauguration Day, March 4, 1933. In his inaugural speech (the one famous for saying Americans had “nothing to fear but fear itself”), he acknowledged the many crises facing the country and observed, “This Nation is asking for action, and action now.”

Normally, a 90th birthday is cause for celebration. But for Mike Pence, it’s apparently an occasion for death threats. The former vice president (and putative 2024 candidate for president) has doubled down on his proposal to replace the New Deal with what he calls a “better deal.” The centerpiece of his plan would dismantle the centerpiece of the New Deal—Social Security—and let seniors play the stock market instead.

This notion of “privatizing” Social Security is so beloved by the far right that the Koch brothers invented a phony grassroots (“astroturf”) organization called “60 Plus” to lobby for it. It would be a gold mine for money managers and the finance industry. It’s endorsed by the Republican Study Committee, composed of more than 150 congressional Republicans. The same group has also endorsed raising the retirement age by three years, to 70—which would basically reduce Social Security benefits by 23 percent for retirees across the board, and would increase the national debt by tens of trillions of dollars.

But guess who hates privatization? American voters—the vast majority of them, about four in five, across all political lines.

The last time privatization was seriously proposed, by President George W. Bush and his political Svengali Karl Rove in 2005, it crashed and burned. It was so unpopular that it was never even brought up for a vote in either House of Congress.

True enough, the Social Security trust fund faces a serious risk of financial shortfall within a dozen years. What to do?

The five of us are descended from President Franklin Roosevelt and his four top advisors who designed the New Deal—as profiled in the brand-new book by historian Derek Leebaert, Unlikely Heroes: Franklin Roosevelt, his four lieutenants, and the world they made.

We think our ancestors would view it as irresponsible not to consider possible increases in revenue. They viewed Social Security as an unshakable compact with the American worker. It’s an insurance policy you pay into with payroll taxes in every paycheck—and when you retire, you are guaranteed a monthly stipend to live on.

FDR said the payroll tax was key to the success of Social Security: It gives workers “a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”

Republican President Dwight Eisenhower was equally blunt. There may be “a tiny splinter group” of politicians who want to mess with Social Security, he wrote, but “their number is negligible, and they are stupid.”

What is not well known, however, is that there is a cap on how much money wealthier workers must pay in payroll taxes. The current cap on taxable earnings is $161,000 a year. When you hit it, you stop paying Social Security tax. Thus, for ordinary workers making that amount or less, their payroll tax contribution is 6.2 percent from every paycheck, all year (matched by another 6.2 percent from their employer). But for the CEO making $10 million, that cap is reached in the first week of the new year. For the other 51 weeks, he pays zero in Social Security tax. Annualized, his payroll tax rate works out to less than one-tenth of 1 percent.

We think our ancestors would find this an outrageous inequity to the janitor or school teacher paying full freight. Our ancestors would raise or eliminate that cap on payroll taxes. And if more were needed, they would happily embrace ideas like President Biden’s “billionaire tax.” With income inequality at record levels, they would insist that America’s richest must pay their fair share, to sustain the most essential programs that ordinary working people and their families depend upon for their very survival.

Yes, we need “action, and action now.” But today we are saddled with a divided Congress that can’t seem to agree on anything, threatening to default on America’s debt, crash the global economy, and dismantle Social Security.

We fervently believe that FDR and his four top lieutenants would demand the kind of action that helps everyday Americans—not yanks their economic security and dignity out from under them. For the New Deal’s 90th birthday, let’s deliver a cake, not a hand grenade.

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Katrina vanden Heuvel
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