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Snapshot for July 13, 2005.
Looking in the wrong places
Why benefit cuts will not solve Social Security’s financing problem
According to President Bush, Social Security’s long-term financial problems stem primarily from too many future beneficiaries receiving benefits that are too high for too long. The president proposes to solve the problem by lowering the share of income that Social Security insures for workers.
Social Security was put in place to insure the incomes of American families in the event a worker could no longer work full-time due to death, disability, or old age. By cutting the income replacement rates—Social Security benefit levels—the president is cutting the income of families when a worker is no longer able to earn enough to maintain a family’s lifestyle the worker strived to achieve.
Often the argument for cutting Social Security benefits is the presumption that most Americans could do better on their own than in a government program. But a large number of American families do not have private counterparts to Social Security benefits. About 43% of households do not have retirement accounts (an IRA, 401(k), defined-benefit pension, etc.), and 31% of households do not hold life insurance policies (term or whole life) according the Federal Reserve Board of Governors’ 2001 Survey of Consumer Finance. This leaves between 30% and 40% of Americans with no private equivalent of Social Security (officially called the Old Age and Survivors’ Insurance Program).
Yet under the president’s plan, workers will still pay the same 6.2% of payroll for Social Security, even if they participate in the president’s private account plans. Not only will workers face a loss of benefits, but they will also lack the additional funds to buy insurance against a drop in income.
Today’s Snapshot was written by EPI senior fellow William E. Spriggs and research assistant David Ratner.