|March 4, 2005
Copyright © 2005 PUERTO RICO HERALD. All Rights Reserved.
Social Security: Fix It or Leave It Alone
There is a persistent misconception on the U.S. mainland even among some in the U.S. Congress that Puerto Ricans residing on the island pay no federal taxes.
Tell that to the roughly 1.2 million employees and self-employed islanders whose earnings are taxed under the federal Social Security System, and who had nearly 2.5 billion dollars withheld from their paychecks in 2001-2002. They also paid 606 million dollars during the same time frame for Medicare Insurance. Working Puerto Ricans are very familiar with lines # 4 & 6 on the W-2 form, the annual statement of wages and deductions required of employers by the Internal Revenue Service (IRS), reflecting a workers contribution to Social Security and Medicare.
On the other end, 17.5% of those residing in Puerto Rico roughly 700,000 -- are currently receiving Social Security benefits of some kind. The monthly Social Security check has a huge impact on the islands economy. Nationally, according to the systems statisticians, some 50 million Americans receive some type of benefit, representing roughly 17% of the total population. Of the population over 65 years of age, 91% receive a monthly check from Social Security.
For these reasons, Puerto Ricans as well as all Americans have a huge stake in the debate gaining force in Washington, President George Bushs "reform" of the nations Social Security System. The Bush Administrations position is that, in ten to twenty-five years, the federal budget will be hard-pressed to pay benefits at the current rates, unless changes begin to take place immediately. He has called the state of the program a looming "crisis." He has called on Congress to pass a reform bill by the end of the year. Puerto Ricos Resident Commissioner, Luis Fortuño, backs the Presidents plan. Opponents of the "reform" question the Administrations basic assumptions.
The Social Security program provides monthly benefits to workers and their families upon retirement or incapacitation. The benefit amount is based on the level of earnings (and corresponding contributions) made by the beneficiary during a working life. Monthly benefits are payable at age 62 (with reduced benefits) or to disabled workers at any age. Full benefits for retirees currently begin at age 65. The average monthly payout for retirees is around $900.00.
The system is envisioned as a "pay-as-you-go" program, with current workers paying for current retiree benefits. Since its institution in the 1930s as a part of President Franklin Roosevelts "New Deal," the system has been able to maintain this financing philosophy, but with todays aging population and the anticipation of many more retirees from the "baby boom generation" of the 1950s approaching retirement age, most agree that at some point additional revenue will be needed to fund benefits at current rates.
The national debate is joined on the issues of "when" and "how." A majority of Americans are dubious about the Bush administrations "crisis" language and fearful that solutions will affect the level of benefits currently available. Hearing these doubts, the Republican-controlled Congress has been reluctant to move too quickly on reform. Senate Majority Leader Bill Frist (R-TN) has said that the Senate might not meet Bush's year-end deadline for the completion of legislation on a reform package.
Social Security is called the "third-rail" of American politics, the electrified bar marked "danger," bringing political death to those who touch it. Conservatives have always longed to cut off the power, while liberals have always preferred to "turn up the juice." Voters have come to understand Social Security as an earned entitlement that the government must protect.
Among President Bushs proposals for a long-term fix is to permit 118 million younger workers to divert as much as 4% of their payments to Social Security into "private accounts" to be invested in stock market portfolios managed by the government but allowing the individual to choose among investment strategies weighted to risk. At retirement age, the accumulated savings would be available to the account owner to manage and should he/she choose pass it on to heirs as part of an estate, an option not available with current Social Security monthly benefits.
His recommendations for reform are encountering strident opposition from those who accuse the administration of an ideological distaste for the system and a desire to gradually dismantle it. The Democratic Party is solidly against the Bush plan. Their solution to the revenue issue is to raise the ninety-thousand "cap" on the amount of earnings eligible for Social Security taxing. By doing so, they say, the system will be solvent for the next six decades or more.
Public opinion has so far not embraced the idea of private accounts. An opinion poll released on Wednesday by Pew Research showed public support for the concept waning. The portion of Americans favoring such accounts fell to 46 percent in the latest poll from 54 percent in December and 58 percent in September.
On Wednesday, Senator Joseph R. Biden (D-DE) lambasted the Bush Social Security reform and the concept of "private accounts as a Conservative attempt to begin the process of dismantling the system. "Its not about Social Security solvency," he told a Public Broadcast System (PBS) interviewer, "its about its very existence. They are trying to wean us away from Social Security altogether."
The Cato Institute, the ultra-conservative Washington "think tank," is, by its own account, the pioneering force behind Social Security reform through personal retirement accounts. According to Michael Tanner, who heads Catos Social Security project, "This is the culmination of our 25 years of scholarship on this issue
Personal retirement accounts is an issue whose time has come."
The private account idea is ridiculed by opponents as being risky to the investor and expensive to the Government in that the amounts diverted away from the overall fund would need to be made up by government revenue; by some estimates $2 trillion over 10 years would be required to make the transition to private accounts.
A leading critic of the Presidents plan is the American Association of Retired Persons (AARP), whose President, Marie Smith, recently challenged the Bush administration to find alternatives to private accounts "Social Security is the only guaranteed, inflation-proof, lifelong benefit that millions of workers present and future can count on. At a time when deficit figures are already at record numbers, it makes no sense," Smith told an Oregon audience, adding that the administration predicted last month that the federal deficit could reach a record $427 billion before the end of the current fiscal year.
Congress reluctance to move on the reform legislation has spurred the Presidents resolve to sell the idea of private accounts to the American people. In an article in yesterdays Washington Post, it was reported that the White House announced "plans to step up its effort to pressure lawmakers into action by dispatching Bush, Vice President Cheney and other administration officials to 60 events in 60 days."
The fight on Social Security seems to have just begun.
Where do you stand of Social Security "reform?"