wfn.org | Myths spread about privatization of Social Security

[NewsDesk <NewsDesk@UMCOM.UMC.ORG>]

Aug. 9, 1999 News media contact: Linda Bloom**(212) 870-3803**New York
10-21-71B{416}

NOTE:  Second in a series.

A UMNS Special Report
By Linda Bloom*

So many older adults are living on fixed incomes that it's not surprising
Social Security is a major issue for them.

Susanne Paul, the United Methodist who leads Global Action on Aging, is one
of many people concerned that business groups favoring privatization of
Social Security have spread a number of myths to convince people that the
system no longer works.

Using research provided by the Twentieth Century Fund, Paul described 10
common myths:

Myth No. 1: Social Security will have to stop payments in 2032.

"This is an outrageous lie," Paul contended. "There is a possible shortfall
of 2 percent, and even that could be easily fixed."

Myth No. 2: Privatization would provide more financial security.

Government-sponsored Social Security operates as a type of insurance system,
covering such risks as disability, the death of a working spouse, an
inadequate pension policy and high inflation. "Investment accounts do not
protect against these risks," Paul said.

While the income benefits of Social Security are guaranteed, benefits under
privatization would depend upon how much an individual saved and how "lucky"
he or she was in choosing investment options.

Myth No. 3: Social Security is a big government bureaucracy that wastes a
lot of taxpayer money.

The administration of Social Security actually consumes less than 1 percent
of the benefits, compared to the 12 to 14 percent normally used in private
companies, according to Paul.

Myth No. 4: The Social Security Trust Funds are an accounting gimmick filled
with worthless IOUs.

At the end of 1997, the trust funds amounted to $656 billion in U.S.
Treasury obligations. Treasuries, Paul noted, are considered to be among the
safest investments possible.

Current projections by the Social Security Board of Trustees hold that the
impending retirement of many baby boomers will force the use of interest
from the securities to meet Social Security obligations between 2013 to
2021. Between 2021 and 2032, the principal would be used. Once the trust
funds are depleted in 2032, the system would be pay-as-you-go, as it was
from the 1940s to 1960s.

Paul pointed out that the reserves allow the government an additional 19
years to find a solution to the gap between payroll tax revenues and
obligations to retirees. 

Myth No. 5: Unprecedented economic growth would be needed to prevent the
collapse of Social Security.

Economic growth already is higher than projected 20 years ago, Paul said.

Myth No. 6: The ratio of nonworkers to workers will reach unprecedented
heights.

In the year 2030, it is estimated there will be 70 dependents for every 100
workers. This compares with 71 per 100 in 1995. But in 1965, that number was
95 dependents to every 100 workers, Paul pointed out, when the United States
"had a much smaller economy."

Myth No. 7: Compared to private institutions, Social Security provides a
meager payoff in relation to the amount contributed by workers.

A private rate of return does not reflect the value of the investment that
Social Security provides, Paul argued. In addition, "Social Security builds
in a cost-of-living adjustment but mutual funds don't."

Myth No. 8: Social Security would have to be dramatically transformed to
take advantage of long-term investments in the stock market.

Congress could enact a law allowing new contributions to the trust funds to
be invested in a variety of stocks rather than just Treasury securities.
Unlike private accounts, individual beneficiaries would not be left
vulnerable to stock losses.

Myth No. 9: African Americans and Latinos benefit least from Social Security
and have the most to gain from a private system.

Although this is technically true, the reason is that these groups collect
fewer benefits because they die earlier than other ethnic groups, Paul
explained. However, Social Security offers a "redistribution" to those at
lower income levels that allows them to get more back in their checks. It
also awards benefits to the children when a parent dies.

Myth No. 10: The elderly generally enjoy comfortable living standards and
could get along without Social Security.

Without the average $800 a month from Social Security, "about half of the
elderly would fall below the poverty line," Paul said.

# # #

*Bloom is news director of United Methodist News Service's New York office.

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