Commentary | Retirement

A new Social Security rationale?

Opinion pieces and speeches by EPI staff and associates.


A new Social Security rationale?

By  William E. Spriggs

President Bush is criss-crossing the nation, pushing his idea of individual Social Security accounts. The nation needs to ask the president what he is thinking as he strays far from Social Security’s original intent. What will happen to the family security built into today’s program?

Currently, Social Security law recognizes spouses and children as beneficiaries of a citizen’s work efforts, and has carved from the program additional protections for those beneficiaries. It is, in fact, a savings account for workers to pass on to protect their families. Bush’s plan would fundamentally change that family values pact because he would allow private accounts to be passed on to the owner’s beneficiary choice.

Social Security gets its money when American workers pay their Federal Insurance Contribution Act (FICA) tax each payday. Note that the tax is “insurance,” not a retirement fund. Workers are insuring their families against economic destitution in case workers can no longer earn a regular paycheck. The formula to determine benefits is not called the “retirement benefit”; it is the “primary insurance amount” — again, the word “insurance.” The primary insurance amount that determines the worker’s own benefit is tied to an additional 50 percent of that amount dedicated for the spouse and children.

So when Bush says that a Social Security personal savings account is the worker’s and that it can be passed on to whomever the worker chooses, it is counter to current law, which recognizes spouses and children as beneficiaries of a worker’s labor. The law provides additional protections for them. Bush is creating a different set of claimants and appears to ignore the traditional benefits for families.

In 2001, just more than 46 million Americans received a Social Security check. Of those, about 21 million were receiving a retirement benefit based on their work history. The president is addressing them with his private accounts — those drawing strictly Social Security old age (retirement) benefits from the Old Age, Survivors and Disability Insurance program, or OASDI. It insures workers and their families in case the worker is no longer employed because of death, disability or old age.

While that is the largest category, another roughly 18 million people, almost 40 percent of all beneficiaries, are the spouses and children of workers who are retired, disabled or deceased. The president has not explained how, using his private accounts, these people would get benefits:

* A 12-year-old whose dad is disabled and taking dialysis treatments

* A 44-year old widow with two teenagers

* A 62-year-old widower of a retired worker

* A 67-year-old retired school bus driver, drawing half his newspaper reporter wife’s benefit

With private accounts, it appears all the insurance each of us automatically gets under Social Security would no longer exist to care for our families. Bush has not explained how private accounts would work for the 6 million women who, though entitled to a retirement benefit based on their work history, draw a retirement benefit based on their husband’s work history because the family benefit from their husband is greater than their own. Currently, they represent 28 percent of retired women. By 2040, AARP researchers project, they will be 38 percent.

Because Social Security insures families, the program assumes that the earnings of a married couple result from joint decisions about where to live, when to move, who is responsible for child or elder care and who would be supported while getting more education. So, married couples are given special treatment. Wives may choose to either receive benefits on their own work record or on their husband’s (they get half the amount he gets). If a husband earned significantly less than his wife, he could similarly choose to receive half his wife’s benefit. But a private account for a husband would cover only his benefit. Retired working wives who earned less than their husbands would get less money in their Social Security benefit.

Under Bush’s plan, what about a wife who never worked if her husband willed his private benefit to someone else? There is no detail about who controls the property right to the husband’s benefit that would be separate from the private account. What if the husband divorced his first wife who helped support him in getting his education, and took time out to raise his children? The current program recognizes the claim of a woman, married at least 10 years, to a benefit based on that man’s earnings record. Would the two wives have to fight over the man’s account?

What about the children living with the first wife? Under current law, they are recognized as eligible for survivors’ benefits should the man die while they are still minors. Would the children have to fight the new wife for their father ‘s account?

Right now, the policy each worker buys grants the same benefit to a family whether the worker becomes disabled, dies or retires. But Bush is proposing a total change in Social Security’s philosophy. Before Americans buy into private accounts, they must first debate the deeper issue.

Some Americans not only have family values, they value their families. They could be in for a shock.

William E. Spriggs is a senior fellow at the Economic Policy Institute in Washington, D.C.



See related work on Retirement

See more work by William E. Spriggs