Nader Denies Social Security Crisis

September 21, 2000

In a statement released Tuesday, Green Party presidential candidate Ralph Nader dismissed the idea that Social Security faces a funding crisis, saying “The idea that Social Security is going to run out of money is simply nonsense. Panic fueled by opportunistic politicians and investment firms poses the only serious threat to the program.”

Following a trend among some opponents of privatization, Nader argues that Social Security’s projected insolvency is merely the result of pessimistic assumptions by the program’s Trustees and that higher economic growth will keep the system solvent. If any extra funds are needed, Nader proposes lifting the ceiling on payroll taxes or expanding the tax base to cover executive bonuses and stock options.

On October 5, Cato will release “Social Security: Is It ‘A Crisis That Doesn’t Exist’?” by Social Security analyst Andrew G. Biggs, which debunks claims made by Nader and others. Cato will be holding a policy forum on the same day at which the topic will be discussed. Both the paper and video from the forum will be available through www.cato.org. Speaking at the forum will be Biggs, Mark Weisbrot, co-author of Social Security: The Phony Crisis (University of Chicago Press, 1999); Richard Jackson, Senior Advisor to the Concord Coalition; and Eugene Steuerle, Senior Fellow at the Urban Institute.

For a quick look at these arguments, see “Irrational Exuberance Won't Save Social Security,” by Andrew G. Biggs.

Statement of Ralph Nader on Social Security September 19, 2000

Social Security is a tremendous success story. The program does exactly what it was designed to do: it provides a core retirement income to the nation's workers. It has reduced the poverty rate among the elderly from more than 50 percent to 10 percent. In addition, the program provides disability and life insurance to almost 95 percent of the workforce. It fills these functions at an extremely low cost -- its expenses are less than 0.8 percent of its benefits. By contrast, the expenses of private insurers are between 15 to 20 percent of annual benefit payments.

The program has an extremely solid economic base. Even under the Social Security trustees' pessimistic assumptions about economic growth, (they assumed an average growth rate of 1.7% per year -- less than half of the average over the last 100 years), the Social Security fund will have enough money to pay benefits indexed to wage increases (which is how the program is designed) through 2037. The fund has more than enough money to pay lower benefits, indexed to inflation, all the way through the end of the projection period in 75 years. If growth rates stay at or near historic levels, the program can pay full benefits (indexed to wage growth) for more than 60 years. The idea that Social Security is going to run out of money is simply nonsense.

George W. Bush proposes privatizing a portion of the program. This is unsound policy. Privatization arguments are based on a simple fallacy: advocates of privatization assume that the stock market will continue to grow rapidly, while simultaneously assuming that overall economic growth will plunge sharply. They can’t have it both ways. Privatization proponents also ignore transition costs and overhead. The administrative cost of the existing system is less than 1 percent of what is paid out each year in benefits, whereas privatized systems in Chile and Britain spend almost 20 percent of their revenue stream on overhead, including such corporate necessities as advertising, sales agents, and executive bonuses. Transition costs will also be large.

Privatization involves a fundamental and risky overhaul of a program that is working well, overall. There would be numerous complications involved in deciding under what circumstances workers could access their private accounts. Since the overall system is sound, there is no reason for the government to enter this administrative morass. Small changes would be sufficient to fix some of the problems in the system, and ensure its long-term health.

I would:

• Defend Social Security from risky and radical privatization plans, ensuring the long-term financial security of retirees.
• Make gradual changes to benefits and the revenue structure, as needed. For example, I would adjust the benefit formula for widows and widowers; the current formula often results in financial hardship for the surviving spouse, and has led to a distressing poverty rate of 20% for older women living alone. If a small amount of additional revenue is in fact needed, this can be providing by raising the income cap on Social Security taxes or expanding the tax to cover executive bonuses and stock options.

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