AFL-CIO Position Statement

[Michael Jones <powderfinger99@yahoo.com>]

Gary Shea's position paper explains quite a bit about the
position of most people against significant Social Security 
reform. Underlying the position are, what I believe, a few
critical viewpoints which are a fairly good indicator of
where most people stand where it comes to reform.

<<<<
Unfortunately, pensions and individual savings just don't reach 
enough people or provide adequate income.
>>>>

Note Gary Shea's choice of "sources" for retirement income. Pensions
and savings.

He left out 401K's and IRA's. Why would he leave these off the 
list? Because they do not provide a "guaranteed" benefit. 401K/IRA's
are defined contribution plans which do not necessarily guarantee
investment results. This distinction is critical to the AFL-CIO
viewpoint because a defined contribution plan essentially moves
most of the investment risk from the company/plan provider to
the worker. 

<<<<
This approach would act as a 
progressive counterbalance to the growing wage inequality that
has plagued working families for the past two
decades. 
>>>

Another strongly held viewpoint by the AFL-CIO is the notion 
that of increasing wages are the primary means of compensation
for work. This is very similar to the position on pensions,
in that the worker is compensated for work essentially without
taking on any of the financial risk involved in the business.

<<<
First, privatization replaces Social Security's guaranteed, 
family benefits with risky individual investment
accounts that will widen income inequality.
>>>

The way I interpret this statement is that Gary Shea believes that
many people might be more successful with a privatization
program than under the current program. In other words, a goal
of the retirement program is to equalize benefits, even if that
means most, if not all, people could get a better return otherwise.
The important distinction would be that no one will do well, because
that would be unequal.

<<<
We believe that a fair and responsible second step would be to 
increase the cap on earnings subject to the Social Security 
payroll contribution tax.
>>>

Here's another attempt to try to equalize income. We can go
done this path to fix the system (raising taxes/lowering benefits).
Raiaing the payroll tax cap will increase the "return" on 
investment for those workers with lower contributions. Those
workers with higher levels of contributions will see their
investment return go more negative.

~~~

Gary Shea's position presented in this paper represents a path
that will lead to further declines in the standard of living
of workers and reduced retirement security. The position is
staked in an economy which does not exist anymore. The economy
of the future will require that workers take on more and more
of the risk of the businesses which employ them. The AFL-CIO
is trying to turn back the clock, to the days when businesses
essentially took on all the risk of business by providing
increasing wages and guaranteed pension benefits.

Those days are gone. The AFL-CIO is trying desparately to bring
the old economy back, but it's already too late.

Missing from Gary Shea's paper is the fact that all major reform
proposals do not eliminate the safety net component from Social
Security. No one will be left out in the cold who has contributed
to the system. 

Gary Shea wants the old economy back where workers did not assume
any of the risk of business. He focused on the fact that wage
income has not kept up with inflation over the past twenty years.
Focusing on wages does not tell the whole story.
Over the same timeframe, investment capital has increased in
value far in excess of both inflation and wages.

If we chose the path presented here by Gary Shea, there will
be greater wealth disparity between those people who invest
in the capital markets and those who do not. The haves and
the have-nots of the future will be decided by who invests
in capital and who does not. Real wages
will continue to fall behind capital, because businesses will
continue to hold costs (wages) inline due to competition.
If Gary Shea's ideas are implemented, the "return" on wages will
fall even more because of the higher tax burden required to support the
Social Security system. It is very likely that future additional
changes in this direction would be required. It this the direction we
want to take?

The tide has already turned in the direction of retirement security
through investment in personal accounts. Young people understand
how bad a deal the Social Security system is. They overwhelmingly 
support defined contribution plans over defined benefit plans.

Time is on the side of young people. Reform will happen. The 
question is will reform come in time to save the current young
people?

Michael