John Fund opines that FDR was not as rigid about private social security accounts as modern supporters of the Social Security system would have us believe.
FDR and private social security accounts
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Former Social Security associate commissioner James Roosevelt Jr., Roosevelt’s grandson, noted in a January 31 Boston Globe op-ed piece: “The implication that FDR would support privatization of America’s greatest national program is an attempt to deceive the American people and an outrage.”
Read: “Don’t use FDR to undermine Social Security”
http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/01/31/dont_use_fdr_to_undermine_social_security/
“As a former Wall Street lawyer, my grandfather fully supported the opportunity of every American to have fair investment opportunities. But Social Security was — and is — something different. It was — and is — the guaranteed basis of a secure retirement. The risk is that future retired Americans will lose that assurance if the guaranteed benefit is eliminated. Drastic changes that divert the payroll tax to privatization will almost certainly eliminate that guaranteed benefit by crippling the ability to pay benefits, imposing trillions of dollars of new costs on the government and creating massive federal debt. Privatization threatens to bring about the collapse of the entire Social Security system.”
Media Matters describes how Fund and Fox News distorted FDRs comments:
“Distorting FDR: Bennett and Hume claimed father of Social Security system wanted privatization”
http://mediamatters.org/items/200502040010
“Fund distorted the facts to defend his, Hume’s distortions of FDR”
http://mediamatters.org/items/200503140006
“Wall Street Journal’s Fund, FOX’s Asman echoed Hume’s Social Security distortion of FDR”
http://mediamatters.org/items/200502100009
“Roosevelt was not advocating that the present system of guaranteed Social Security benefits “ought to ultimately be supplanted by self-supporting annuity plans.” Rather, he was proposing that a system of both mandatory contributions — today’s Social Security — and voluntary annuities would eventually eliminate the need for a different fund that was established to provide pension benefits to Americans who were already too old in 1935 to contribute payroll taxes to the Social Security system.
Here is the context of Roosevelt’s 1935 speech:
‘In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps 30 years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities, which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.’
Further, while Roosevelt envisioned some form of “voluntary contributory annuities” to supplement Social Security, Fund and Asman erroneously equated those annuities with Bush’s proposed private investment accounts. The voluntary annuities would differ from private accounts in that their funds would be deposited into and paid out of the Social Security trust fund, and they would provide a government-guaranteed benefit like mandatory contributions, as Edwin Witte, executive director of the Committee on Economic Security (CES), noted during 1935 congressional hearings on Roosevelt’s Social Security bill.”
“During 1935 congressional hearings on Roosevelt’s Social Security bill, Edwin Witte, executive director of the Committee on Economic Security (CES), clearly stated that the voluntary accounts were intended as a “separate undertaking” meant to “supplement” the compulsory system, not replace it: “The voluntary system of old-age annuities we suggest as a supplement to the compulsory plan.” Further, voluntary annuities would be “similar to those issued by commercial insurance companies” — as Witte explained — but they would differ from private accounts in that their funds would be deposited into and paid out of the Social Security trust fund, and they would provide a government-guaranteed benefit like mandatory contributions.”
I’m looking at the Roosevelt quote again:
…and it sure seems to me Fund got it right.
We already have supplemental retirement plans that depend on voluntary contributions. These are called IRAs, 401(k)s, 403(b)s, among others. These all exist in addition to the fixed return annuities which were all that was available in the 1930’s.
I think Bush’s plan is DOA. Most people look at Social Security as a minimum guaranteed retirement. The purpose of the plan is to keep old folks from eating out of garbage cans. In the middle income brackets, all of us are using a combination of tax deferred savings vehicles in order to provide for our retirement already, that is why I can’t see the private accounts really attracting a lot of interest.
First of all, there will be huge strings attached to private accounts. The type of investments will be dictated to me. The timing of contributions will be dictated to me. The timing of withdrawls will be fixed by law. (I won’t be allowed to pull out a lump sum, for example.) Should I encounter major illness and wish to withdraw funds early, I won’t be allowed to do so.
In order to fund the cut over, the projections are an addition of trillions in debt. This represents a huge, unfunded liability for future generations.
Social Security is a Ponzi scheme, and should be phased out. Since that is probably not possible politically, any fix applied to it should represent as light a burden to future generations as possible.
Alternative fixes include: expanding the cap on taxable earnings to either 120,000 or to an unlimited amount, means testing benefits (SS is a redistribution of wealth, not a retirement plan, so why fund retirement for rich retirees?), raising the retirement age (people do live longer), cutting off retirement benefits to individuals residing outside the United States, and ending SSDI and other programs that suck up funds.
All of these would extend the life of this Ponzi scheme without piling on trillions more in debt for future generations to pay. If I have to pick my poison, then I would prefer to choose from the above list and keep on paying into the 401(k) with fewer strings attached.
Glen – I agree that the SSI portion of social security is something that needs to be overhauled. At the Town Hall meeting on Social security I attended, a correctional officer told our Congressman about how inmates approaching release have figured out how to get on SSI as soon as leave prison. I’ve done some work investigating Medicare and Medicaid fraud and its amazing how many recent immigrants (mostly from the former Soviet Union) are also on SSI. How did they get into this country with conditions defined as disabilities?
Lastly, SSI has become an early retirement program for middle-aged blue collar workers whose bodies are beginning to break down under the physical demands of their jobs. How many years can a person load boxes for UPS, or handle luggage for the airlines, before the spinal column says “enough”? There should be mandatory job training programs directed at transitioning aging blue collar workers into less physically demanding vocations.
Interestingly, the Correctional Officer’s observation at the Town Hall meeting failed to elicit must interest from our Congressman, since his main focus was not on fixing the current program, but selling private accounts. This is unfortunate. The Republican party that would attract my support would be one working pragmatically to make government more efficient, effective and business-like, not one trying to do away with government to satisfy an ideological imperative from some propaganda manual.