The biggest domestic issue in the 2004 Presidential election has barely been mentioned by the candidates. More New Yorkers will be personally affected by the future of Social Security than by events in Iraq. George Bush has made it clear that "reforming" it will be high on his agenda if he serves another term. John Kerry has declared that he opposes privatization, the type of reform advocated by Congressional Republicans and the President.
Over 740,000 elderly New York City residents receive Social Security retirement benefits, plus nearly 290,000 younger spouses and children of retirees and disabled workers. About three out of five elderly Americans depend on Social Security for at least half of their income. Those who now receive Social Security benefits would not be affected by proposals on the table, which are limited to people under the age of 55.
The Social Security debate has been publicized as a choice between letting the government control the taxes we pay into the system, versus letting each individual worker invest his or her share of those taxes. Many Americans believe that Social Security funds will run dry before today's younger workers retire, and that if they could pay taxes into personal stock trading accounts, they would be able to invest their money more wisely than the government does.
In reality, the future of Social Security depends on factors no one can predict. Federal analysts make forecasts based on their assumptions; critics of the administration question both these assumptions and the conclusions drawn from them.
The Bush administration predicts that in 2042, the Social Security system will no longer have enough to pay the full benefit every recipient is promised under today's system. Even this is in dispute: the Congressional Budget Office thinks the system will be fully funded until 2052. To put the problem in perspective, the shortfall predicted by the Bush administration is about one-third the size of the federal revenue loss that will result if the president's income tax cuts continue.
Shortly after he took office, Bush appointed a Social Security Commission to propose reform measures. They developed three models for reforming Social Security which would allow workers to pay a small part of their payroll taxes-2 to 4 percent-into personal accounts managed by private financial investment companies, who would invest them in return for a small fee. Workers who chose not to participate would receive the amount they would be eligible for under the traditional program.
Conservative think tanks and Republican members of Congress have proposed more radical changes to Social Security. One bill introduced in 2004 would redirect half of the taxes now paid to Social Security into personal accounts. Other plans gradually reduce the minimum benefit guaranteed to retirees. Most require government subsidies from outside the Social Security fund.
Any reduction in Social Security benefits would disproportionately harm New York residents, because so many future retirees will be people of color, and people with low incomes. Currently the majority of New York States elderly residents are white, but that picture is changing. The state Office for the Aging estimates that by 2015, the number of minority senior citizens will have risen by 51 percent. Nationwide, the average white retiree depends on Social Security for less than 40 percent of her annual income. By contrast, Social Security supplies the average African-American and Hispanic retiree with 54 percent and 66 percent, respectively, of their income.
Today about one in six elderly New Yorkers lives in poverty. According to the Century Foundation, benefits under one proposal from Bush's Social Security Commission would have to be reduced by a third within three decades. The average elderly woman on Social Security now receives benefits of about $10,200 a year, only slightly above the poverty level of $9,310. If benefits were reduced by a third, many more New Yorkers would be impoverished.
For most Americans in the lower income brackets, their largest financial asset is their house, but few low-income New Yorkers own their own homes. Unlike home owners, renters cannot take out home equity loans when they need extra funds.
The Democratic Party platform opposes privatization. John Kerry quotes a University of Chicago economist, Austan Goolsbee, who estimates that the Bush Commission's proposals would give nearly a trillion dollars of Social Security money to the financial services industry. Goolsbee also predicts total benefits to retirees would be cut by up to 45 percent, and that investment expenses for personal accounts could consume 20 percent of the value of the average retiree's savings account.
Researchers opposed to privatization of Social Security believe the system does not need major changes. They question the assumptions of the Bush administration: that the economy will grow at half its former rate, while stock market growth remains the same.
Even if that inconsistent assumption is accepted, opponents believe that modest increases in payroll taxes and lifting the cap on taxable income would close the gap., The Social Security fund would be solvent for the next 75 years if payroll taxes were raised from 12.4 percent to 14.3 percent, an amount comparable to the rise under Ronald Reagan in 1983. In addition, earned income over $87,900 is not subject to the payroll tax; if this cap were lifted, relatively few wage earners would be affected.
Each year, Social Security checks bring about $8 billion into the New York City economy. Most of that money is spent quickly and locally, generating additional economic activity. Any action that reduces this inflow will harm New Yorkers of every age, as would the need to replace federal funds to support our aging residents.
Linda Ostreicher, a former budget analyst for the New York City Council, is a freelance writer and consultant to nonprofits.