American Federation of Government Employees
AFGE OPPOSES ALL FORMS OF SOCIAL SECURITY PRIVATIZATION
The American Federation of Government Employees, AFL-CIO (AFGE) is
equally opposed to privatizing Social Security into a system of
individual accounts or privatizing the investment of the OASDI
Trust Fund.
The arguments against individual accounts are well known: They
undermine the progressive character of the program, they put too
much risk on individuals, they are inefficient (costing hundreds
of millions in unnecessary fees and profits to Wall Street firms),
and the transition is costly, requiring tax increases, benefit
cuts, and/or retirement age increases.
AFGE's opposition to "collective" or "direct government" stock
market investment have to do with: (a) the impact on the federal
budget, (b) the loss of democratic/popular control over the investment
of the Trust Fund, (c) the inherent risks to benefits, and (d) the
fact that the "rate of return" arguments which favor privatization
cannot be reconciled with the Social Security Trustees' projections
of a Social Security solvency problem.
- Collective private investment would have an enormous and harmful
impact on the federal budget. Investing even as little as 40 to 50
percent of the Trust Fund in private equities would require initial
federal outlays of between $60 and $80 billion. In the context of
balanced budget politics, this money would have to come either from
spending or new taxes. We predict massive spending cuts, affecting
federal jobs and benefits, as well as further general budget pressure
on the programs and agencies all Americans depend on. Indeed, some
backers of this proposal consider the attendant reduction in
government spending its highest virtue.
- The issue of democratic control, reflected in the debate over
the benefits of private vs. public investment, is an important one
for working families. Those Republicans that favor individual
accounts said it would give Americans more control over the way
their Social Security taxes were invested and that Democrats didn't
trust people to have that control. The strength of this populist
rhetoric is lost on advocates of collective private investment.
While individual accounts give the illusion of control, the collective
privatization plans explicitly prohibit any democratic control.
Meanwhile the status quo, which provides the only real democratic
control, is unappreciated for what it is.
Treasury bonds, unlike corporate bonds, are invested for the public
good by those who are democratically elected to represent the
public. In contrast, all plans for "collective" private investment
so far have insisted upon strict rules prohibiting government
"interference" in corporate governance. Trustees of a privatized
financing system for Social Security would have a fiduciary
responsibility to support corporate plans to maximize profits.
Unfortunately, maximizing profits has increasingly come to mean
shipping American jobs overseas, compromising the environment, and
violating the rights of workers both in the U.S. and abroad.
- Privatizers may hope for the best, but the majority of Americans
who depend on Social Security must prepare for the worst. There
have been several sustained downturns in the private equity markets
since the establishment of Social Security, some of a magnitude
which would have threatened the ability of a privatized Social
Security Trust Fund to pay full benefits. Yet Social Security,
entirely insulated from fluctuations in the private equity markets,
has never missed a payment in 60 years.
There is no way that advocates of collective private investment
can guarantee that if the stock market investments do not perform
as promised, benefits will not be cut. On the contrary, there is
every reason to believe that Americans will be told that they
collectively accepted the risks of the stock market when they
"agreed" to private investment and must swallow benefit cuts or
tax increases to keep the system "in balance." The "political risk"
from privatization easily equals the "market risk" with respect to
benefit guarantees.
- It is important to remember that the proverbial 'pot of gold"
may not be waiting at the end of the rainbow. Advocates of
privatization --either collective or individualized -- claim that
stock market investment can "solve" Social Security's funding
problems over the next 75 years by yielding a higher rate of return
than the current financing system. They base this argument on models
that assume economic growth in the future similar to that of the
past. That assumption is inconsistent with the Social Security
Trustees' projections that U.S. economic growth rate will decline
from an average of roughly 3.5% over the past 75 years to 1.5% over
the next 75 years. It is this questionable forecast that is used
to suggest Social Security faces a funding problem beginning around
2032.
Privatization advocates cannot have their cake and eat it too. We
cannot have both fast and slow economic growth in the same years.
One set of projections must be wrong: Either there is no looming
Social Security financing problem, or stock investments would
exacerbate the problems, rather than be part of the solution.
- The "rate of return" arguments advanced by privatization advocates
are a red herring. The issue goes deeper than whether Mutual Fund
appreciation is higher than a Treasury bond yield. Rate of return
in the context of a social insurance program like Social Security
is more profoundly about our government's role in income redistribution,
and whether Social Security benefits should replace a higher portion
of the pre-retirement income of low and middle-wage earners than
it does for high income earners.
Social Security's progressive benefit structure gives a superior
"rate of return" to those in the bottom half of the income
distribution, the same Americans who are likely to rely upon Social
Security for almost all of their retirement income. This group
would have nothing to gain in terms of "rate of return" from any
version of Social Security privatization.
- The 50,000 workers at the Social Security Administration,
represented by AFGE, are the best in the business. Private sector
insurance companies and pension investment firms have administrative
overhead averaging 40%, while SSA's overhead costs are just under
1% of benefits.
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