Social Security Spooks
August 13, 1999
by Walter Williams
Walter Williams is a nationally syndicated columnist.
Liberal Democrats in Congress and Bill Clinton love to attack
Republican proposals for Social Security reform. In their quest for votes, they
stoke the fears of older Americans by telling them that Republicans want to
destroy Social Security by allowing Americans choices in providing for retirement.
Most Democrats and some Republicans rank Social Security with God, motherhood
and apple pie.
Few people know that about 5 million Americans employed by state
and municipal governments do not pay into Social Security. Under the provisions
of the 1935 Social Security Act, state and municipal governments could opt out.
This Social Security loophole was closed in 1983; however, Congress permitted
those 5 million employees, as well as about 100,000 clergy, to remain exempt
from paying into Social Security.
Part of President Clinton's plan to "save" Social Security, and
championed by Sen. John Breaux, Louisiana Democrat, is to force previously exempted
employees into Social Security. If 5 million more workers are forced into the
system, it would bring in an estimated $11 billion over five years. Instead
of Social Security collapsing in 2030, it would collapse in 2032 and there'd
be 5 million more Social Security obligations. Mr. Clinton and Mr. Breaux's
proposal is standard for any Ponzi scheme - to keep the scheme going, you have
to round up more participants.
Last April, 12 senators, including five Democrats - Dianne Feinstein
and Barbara Boxer, both of California; Christopher Dodd of Connecticut; Richard
Durbin of Illinois; and Edward Kennedy of Massachusetts - descended on the White
House to demand President Clinton not support forcing 5 million of their constituents
into Social Security. They warned of the adverse impact on employees in terms
of lower rates of return and lost flexibility.
J.T. Young, chief economist for the U.S. Senate Republican Policy
Committee, points out a real-life example of the inferiority of Social Security
compared to municipal pensions. San Diego city employees are required to put
at least 3 percent of their salary into a pension plan (and may contribute up
to 7 percent). Say a worker with a constant salary of $32,000 puts a minimum
of 3 percent of his salary into a defined-contribution plan that goes into a
mutual fund paying an annual rate of 7 percent. Upon retirement, that worker
will have $293,385 in constant dollars. Such a return is far superior to Social
Security's zero to 2.5 percent rate of return.
If currently exempt workers are forced into Social Security,
they'd also lose the flexibility of their municipal pension plans. Municipal
pension plans typically award partial benefits for partial disability. Social
Security provides benefits only when the individual becomes totally unemployable.
People in high-pressure jobs like police and firefighting sometime require early
retirement. Under Social Security, retirement benefits are not available until
age 62. It doesn't take a rocket scientist to figure out why municipal employees
don't want to be in Social Security.
But what are we to make of Democrats who criticize Republicans
for proposals that would begin the process of allowing American workers to find
a deal better than Social Security while at the same time fighting to keep their
5 million constituents from being dragged into the Social Security rat hole?
At best, they're a little more than forked-tongue scoundrels.
When politicians boast to you about the wonders of Social Security,
you should ask them: "If Social Security is so wonderful, how come people have
to be pulled kicking and screaming into it? If it's so wonderful how come you're
petitioning Clinton to spare your municipal employee constituents from being
pulled into it?" I bet they will fork you gibberish for answers.
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