Social Security Reform – A Frontal Attack on the Working Class

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The current media blitz in the US about social security “reform” is the latest installment in a quarter century of austerity attacks against the American working class. American capitalism has been implementing austerity measures since President Carter first began talking about the “economic malaise” during the period of double digit inflation in the late 1970s. The continuing economic crisis has pushed the bourgeoisie towards the brink of a qualitative breakthrough in the ferocity of austerity. Up to now, one of the strengths of American state capitalism was its ability to use the relative size of the private sector economy in the US and the lack of direct state ownership to impose austerity in a diffused manner.

For example, the lack of a state-run, centralized health care system meant that cuts in medical care were not announced and implemented nationally on a centralized basis but were introduced through thousands of employer-based medical benefit programs at different companies and economic institutions at different times, in different places, in different forms and guises. Likewise, instead of announcing a generalized reduction in wages across the economy, or even across an industry, wages were attacked at the level of individual enterprises and corporations, making it more difficult for the proletariat to respond in a unified and simultaneous manner. Today the bourgeoisie is finding it impossible to continue its avoidance of a frontal assault on the social wage. It is in this context that the current social security “reform” proposed by the Bush administration must be viewed.

The current proposed fiscal budget put forth by the Bush administration calls for the abolition or scaling back of a 150 programs that the government claims “don’t work”. The cuts include programs that are near and dear to core constituencies of the Bush administration, such as the abolition of the farm subsidy program, vital to the prosperity of the agribusiness sector. However, even if they cut these programs – and there is no guarantee about this, as the last time the Bush administration proposed cutting 100 programs, only 4 wound up falling under the axe – they would have a virtually insignificant impact on the budget deficit. These programs are small potatoes compared with the rest of the “social programs.” Most of the expenses of the state are on two issues, one the so called “entitlement” programs, such as social security, Medicare and Medicaid, and the other, the military. In the face of the imperialist imperatives facing the US government in this period, it is inconceivable that military expenses are susceptible to cuts. In fact the Bush administration considers the homeland security and military expenses as “off budget” items, which are not included in the official budget proposals. This means that the bourgeoisie must move towards directly attacking the social wage head on, which is something they have carefully tried to avoid in the past.

The Economic and Social Function of Social Security in the US

While social security is part of the social wage – that part of the wages paid to the working class by the state in order to assure the social reproduction of the working class, in this instance to support the standard of living the disabled, elderly, retired workers, and the survivors of workers who have died, it would be inaccurate to assume that this is money that comes from the state; it is actually money confiscated from the workers’ own wages, collected, administered and distributed to the workers as part of state capitalism’s mechanism of centralizing economic life and tying the proletariat to the state apparatus. Historically workers always had the responsibility to support not only themselves (those on the job), but also their dependents – their children, their elders (who were too infirm to continue working) or their relatives who were disabled. They used part of their wages received from their employers to do so. However, in the Great Depression in the 1930’s unemployment in the US reached 30 percent and millions of workers were unable to support themselves or their dependents. Private charities were totally incapable of handling this social crisis, and state capitalist measures were introduced through the New Deal to stabilize the social situation and prevent potential future disasters. This was not some great reform, as the bourgeoisie likes to claim, but merely a restructuring of the way the working class had always supported its elderly and disabled in a manner that benefited the state. Social Security is actually paid for by the working class itself, not the state. Fifty percent of social security funds are raised by taxes on the wages paid in each pay period to the workers. The other 50% comes from a matching tax levied on their employers. As far as the employers are concerned, economically their tax contribution to Social Security is actually calculated as part of the wages, or labor costs, they pay for their workforce, part of their wage bill. Whereas the workers used to support their seniors by personally setting aside part of their earnings, under Social Security the state itself literally confiscates a part of the workers wages determined by law and distributes this money to the retired workers in the name of the state. While this guarantees that the senior citizens will be supported even in times of high unemployment, more importantly the state’s distribution of Social Security checks serves to tie the working class to the state – even if it is only to have access to part of their own wages that has been set aside.

The Manufactured Financial Crisis of Social Security

The money paid into the social security system has never gone into individual retirement accounts, even if the government annually sends workers nearing retirement age a financial record of the amount of money they have paid into the system over the years. The social security checks of current retirees is paid from the taxes levied on the first $90,000 of wages of current workers and exempts the bourgeoisie from having to contribute significantly to the system. Most of the taxes collected goes into the Federal Old-Age and Survivors Insurance Trust Fund (commonly called the Social Security trust fund). A much smaller amount goes into the Federal Disability Insurance Trust Fund. The social security checks distributed to the retired and the disabled each year are drawn from these funds. At the end of the year any money left over is required by law to be lent to the federal government; it is not allowed to accumulate in the trust fund. According to the New York Times, “The government issues interest bearing bonds to the trust fund and immediately spends the money for other purposes” March 8, 2005. These bonds are supposed to be redeemed when and if the social security trust fund does not have enough money to pay social security checks. In other words, the social security trust fund is actually comprised of current-year social security tax funds and a bunch of IOUs from the federal government.

Until the 1980s, social security taxes were low and generally very little money was left over at the end of the year. To solve an alleged social security financial crisis during the Reagan administration, a special blue ribbon panel, headed by Alan Greenspan, who would convert his success on this panel into his nomination as head of the Federal Reserve, proposed to “save” social security by cutting benefits and raising taxes. This led to the accumulation of incredibly large surpluses in the trust fund, reaching into the hundreds of billions of dollars each year, as baby boomers paid vastly more money into the program than was necessary to support their elders. These surpluses were each year turned over to the federal government and were used by the Reagan, and the first Bush administration to begin reducing budget deficits and by the Clinton administration to actually achieve a budget surplus. This money helped Reagan to fund the acceleration of the arms race in the 1980s that helped to bankrupt Russian imperialism, to fund wars and military adventures over the past two decades, and to compensate for tax cuts for the rich. Today it is estimated that there is approximately $1.7 trillion dollars in IOUs in the trust fund, and that this sum will rise to $6 trillion by 2018, when the trust fund will have to start redeeming the Treasury bills (the IOUs) to fully cover the social security checks for the baby boom retirees. In other words, while the bourgeoisie is ranting and raving about the impending bankruptcy of social security as members of the baby boom generation near retirement age, the system is actually awash with incredible surpluses – except that these surpluses are being diverted to finance imperialist war and military expenditures. The Bush administration predicts the system will become insolvent by 2042, but the less politically motivated prediction by the Congressional Budget Office is that insolvency would occur 10 years later, in 2052 – when the oldest of the baby boomers would be 106 years old, and the youngest 88, i.e. when most of them would have already died and it would be their children who be receiving their pensions. It is estimated that the shortfall in 2052 could be easily compensated for by an adjustment in federal spending of around 3 percent.

The Real Purpose of Social Security “Reform”

The debate in the bourgeois media over social security “reforms” proposed by the Bush administration focuses on the brouhaha over the diversion of a portion of workers’ tax contributions into private investment accounts, tied to the stock market. There is a lot of talk about fantastically high conversion costs to set up these accounts (estimated as ranging from $2 trillion to $6 trillion) and the supposed windfall profits to Wall Street investment brokers. But this debate obscures what is really at stake. At the heart of the Bush plan is to alter the formula used to calculate benefits for future baby boom generation retirees who are 55 or younger today, which would slash guaranteed benefits by 25% to 45% over the coming decades. The real goal of the Bush administration is to avoid paying back those $6 trillion that will have been pilfered from the trust fund by 2018. In 1983, the American ruling class used the ruse of an impending social security crisis to raise the taxes on the working class and used that money not to pay pensions to retirees or to set it aside to pay the pensions of future retirees but to fund its aggressive imperialist policies. Now it wants to complete this massive social swindle by maneuvering to avoid repaying $6 trillion dollars confiscated from the working class back into the social security trust fund.

Whether the Bush investment accounts are ever implemented, the bourgeoisie is united in its view that social security can only be fixed by cutting benefits and raising taxes, as the New York Times, which is opposed to the investment accounts, has openly said in its editorial columns. Despite the bourgeoisie’s attempts to throw up a smoke screen around social security “reform” with talk of private investment accounts, the fundamental raison d’etre of the social security reform is to cut the social wage of the proletariat. This frontal attack, while necessary for the bourgeoisie, is fraught with the risk of triggering a proletarian response, which is why they have delayed this type of attack for so long. When added to the accumulation of serious inroads on the proletarian standard of living, the potential for a proletarian response increases exponentially. Clearly there is unity within the bourgeoisie on the need to “reform social security, but the danger of provoking a working class explosion is one reason why there is so much hesitation within the ruling class on exactly how and how quickly to proceed. But there is also a concern that any clumsily orchestrated reneging on repaying the Treasury bonds to the social security trust fund, which are supposed to be backed by the “full faith and credit of the United States,” might jeopardize the confidence in and value of other Treasury bonds, much of which are held by foreign investors, like the Japanese and Chinese, who might transfer their funds to investments in Euros. This would create an economic calamity for the US. Even within the Republican party there is a hesitation to rush headlong into the investment accounts proposals, including Greenspan’s call for a go slow approach that would phase in the private accounts over a protracted period of time. However it is an open question for the ruling class as to whether they actually have the option to delay for too long.

J Grevin, 1/4/05.