The country’s most sweeping political debate isn’t about Iraq or moral values or homeland security. It’s about retirement.
Social Security once seemed as relevant to most college students as picking out a nursing home, but the nation’s leaders have recently brought the debate to the forefront of American politics.
Since President George W. Bush endorsed private accounts in February, a flurry of special interest groups and organizations criss-crossed the nation, touting or snubbing privatization.
At the center of the whirlpool, the college generation is stirring. Students otherwise indifferent to retirement are beginning to realize that their generation could be most affected by whatever decision Washington makes.
The End of Social Security?
As convoluted as Social Security seems, it rests on a simple principle: working generations support retirees. When President Franklin D. Roosevelt signed the Social Security Act in 1935, the job was easier. In the 1940s, 42 workers paid for only one retiree’s benefits.
Today Americans are living longer, so they are taking more money from the program. As a result, the burden of financing one American’s retirement falls on just three workers’ taxes, according to the U.S. Social Security Administration. With the baby boomers leaving the workforce, the ratio will continue to decline. The load on young taxpayers will only increase.
The Social Security Act now projects the country’s retirement system to fold in 2041 — just as the college generation is set to retire. In other words, college students supporting their parents’ retirements may only receive 70 percent of their Social Security payments when they leave the work force.
The need for change is clear, and most political and economic leaders agree the system needs tinkering. The question is, how much?
Northwestern economics Prof. Mark Witte says the numbers are misleading and privatization is completely unnecessary.
Here’s the argument: A growing U.S. gross domestic product means more money in the hands of Americans. When Americans’ wages increase, they pay more taxes, including for Social Security. That means the value of Social Security taxes — and Social Security benefits — grows with the economy.
“Benefits ratchet up with wages and the economy,” Witte said. “If productivity grows steadily, there really shouldn’t be a big problem.”
So will a growing economy preserve the program for students’ retirement? Republicans are not so optimistic. In his 2005 State of the Union address, Bush made Social Security his top domestic priority. The White House and many Republicans think that at 70 years old, Social Security could use some help.
The president’s answer was private accounts. And the fight for Social Security began.
The Backlash against the President
The Social Security debate is national, but the most dynamic battle is for the current college generation.
The president’s endorsement of privatization immediately sparked national controversy and criticism. The opposition joined progressive groups such as MoveOn.org with older organizations such as the American Association of Retired Persons to form an atypical alliance against the president.
The coalition’s strangest coupling might be MTV’s Rock the Vote and AARP. The groups united this year to wage the “I Love Social Security” campaign to save the program for present and future retirees.
Rock the Vote’s flashy web sites features Web logs, links to articles and an online store with gear, ranging from bracelets and T-shirts to “I Love Social Security” trucker hats.
AARP public relations representative Evelyn Morton said the Web site had more than 30,000 hits from seniors in the last few months.
“There has been a tremendous response from seniors,” Morton said, who attributed interest to “older Americans who care about their children and grandchildren.”
According to sales, seniors are hitting up the Web site to buy the bracelets — and students are buying the message.
Once leading advocates of the president’s plan, young adults now question privatization. Support among young adults for private accounts recently fell to just 30 percent, according to a March poll by the Pew Research Center.
Weinberg junior Jenna Carls admitted she “doesn’t know much about” Social Security, but said publicity by groups such as AARP encouraged her to take action against the president’s plan.
“We’ve had at least one rally, and we’re working on a Social Security event right now,” said Carls, a member of College Democrats. “It may not be a sexy issue, but it’s so important that our generation enjoy the benefits of Social Security.”
Privatization and Beyond
Weinberg sophomore Shil Patel believes private investment accounts will benefit the college generation more than sticking with the old system.
“This isn’t gambling,” said Patel, a member of College Republicans. “I know what to do with my money better than some guy in Washington.”
With private accounts, workers take a portion of the money they pay Social Security and invest it in stocks or mutual funds to receive profits in addition to retirement savings. The plan seems like a no-brainer: private investments pay back the money Americans would give to Social Security plus profit from the investment.
But there’s a catch. Older generations depend on younger Americans’ taxes to support their retirement. Every dollar diverted from Social Security into private accounts is a dollar that doesn’t go to a current retiree.
To make up the difference, the government would have to borrow more than $1 trillion. NU economics Prof. Robert Gordon says the transition costs of privatization would exacerbate “already enormous federal deficits and cause interest rates to rise.”
Instead, Gordon — along with Witte — suggests that a combination of subtler changes,such as increasing taxes on wealthier beneficiaries and moving back the retirement age, would both fix the system and keep the government from slipping further into debt.
Americans seem to agree. For now, public opinion is siding with critics of the Bush plan.
The debate is not over and may not be resolved in this presidency or even this decade. But the battle over Social Security has taught the college generation an important lesson: The future of Social Security is their future, too.
Reach Derek Thompson at [email protected].
WHAT IS PRIVATIZATION?
Taxpayers take a portion of the money they pay Social Security and invest it in mutual funds or stocks. The plan seems like a no-brainer: Private investments pay back the money otherwise put toward Social Securit. Plus Americans profit from the investment. But transition costs and potential market downturns have some economists worried.
Source: U.S. Social Security Administration
