Disability Action Center NW, Inc.

NCIL Social Securtiy Privatization Fact Sheet

National Council on Independent Living
www.ncil.org

“Social Security” is the short name for the Old Age, Survivors and Disability Insurance (OASDI) programs. Many people do not understand that Social Security is more than a retirement program. In fact, about 1 in 3 Social Security beneficiaries is not a retiree. Social Security provides benefits to 47 million people, including 7 million people with disabilities. It insures individuals and family members when a worker retires, dies or becomes disabled through the following programs:

Disability Insurance
Retirement Insurance
Survivors Insurance

How the Current Social Security System Works
People work and pay taxes into Social Security. The taxes are called “FICA” for the Federal Insurance Contributions Act. Each worker pays 6.2 % of wages and the employer pays 6.2% up to a certain income limit. The wage limit in 2005 is $90,000. The money people pay in taxes is not held in a personal account for them to use when they get benefits. Their taxes are used to pay people who are now getting benefits. Any unused money goes to the Social Security trust funds. The Old Age and Survivors Insurance Trust Fund pays retirement and survivors’ benefits. The Disability Insurance Trust Fund pays disability benefits.

Social Security is Social & Family Insurance
Social Security is insurance, not private investment. Everyone contributing to Social Security shares the risk of the common life events of death, retirement and disability.A wage earner contributes taxes to earn benefits, and members of the worker’s family also qualify for benefits. This approach is called “social insurance.” It means that everyone pays into a pool of money to cover themselves and their family if they die, retire or can no longer work.

Once eligible, workers and their families can expect a set payment each month. Benefits are adjusted yearly for inflation to protect their value. Some people move among Social Security’s three programs based on their work history, age or eligibility category. Workers with disabilities are a good example: when they reach retirement age, their benefits convert automatically from disability to retirement insurance. Many retirees and survivors have disabilities.

Both Social Security Disability & Retirement Insurance Use Same Benefit Formula
Workers qualify for both disability and retirement benefits by paying Social Security taxes. A common idea is to change the formula that sets the monthly benefit. A proposal to lower the Primary Insurance Amount (PIA) will cut both retirement and disability benefits because they are set by the same formula. Reducing the PIA will force more people with disabilities further into poverty.

The Future of Social Security
Social Security will face funding issues in the future. When Social Security needs to pay out more for benefits than it collects from payroll taxes, it will face a “shortfall.” This will happen mostly because fewer workers will pay taxes to Social Security to support each person receiving retirement benefits. But, even then, Social Security will be able to pay reduced benefits from the taxes it collects. According to the Congressional Budget Office (CBO), Social Security can pay full benefits until 2052 and 70-80 percent of benefits after that. Social Security will not be bankrupt. There are many ways to improve the future finance needs for Social Security’s insurance programs. Policy makers and Social Security experts know this.

What is Privatization & How Will Private Accounts affect Social Security
“Privatization” or private accounts are terms used to describe changes being proposed. The idea is to take away some of the money workers now pay into the Social Security system and divert it into individually owned accounts. These accounts would be "carved-out" of Social Security, lowering the amount of money Trust Funds have to pay insurance benefits.

Private Accounts Increase Personal Risk & Reduce Guaranteed Benefits
Private accounts would allow workers to invest some of their Social Security taxes in certain stocks and bonds to “pre-fund” their own retirement. When they retire, they would get reduced Social Security benefits based on how much money they put into a private account. Under this approach, people lose a future guaranteed fixed benefit. Instead, they risk getting smaller benefits because profits from stock market investments are impossible to predict. There is no guarantee that people with private accounts will do better than people who get fixed monthly Social Security benefits and they could do much worse. In 2001, the Government Accountability Office (GAO) studied several plans to change Social Security. It concluded that, compared to the current program, people with disabilities would get much lower benefits under plans that would use payroll taxes to create individual private accounts.

Private Accounts Will Increase Huge Government Borrowing & National Debt
If workers create individual accounts, the money that they shift from Social Security’s tax base will leave less money to pay current benefits. This “shortfall” is estimated to be almost $4.9 trillion dollars through 2028. Some people call the shortfall the “transition” cost to switch from a social insurance program supported by a majority of workers to a system of private self-funded accounts. Some suggest that the government can borrow money to cover the transition. But the government will have to borrow so much money that it will increase the national debt for the next 60 years.

What Can You Do
The disability community is urging Congress to request a beneficiary impact statementfrom Social Security on every major component of private account proposal s. In a program that affects millions of individuals of all ages, it is essential for policymakers to look beyond the budgetary changes to understand the actual impact on people’s daily lives.

Contact your Senator and Representative by calling the U.S. Capitol Switchboard at 202-224-3121. Request that their offices record your position and concerns.

NCIL is grateful to CCD for information used from Social Security Fact Sheets produced by the Consortium for Citizens with Disabilities. http://www.c-c-d.org/