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Commentary :: Politics : Social Welfare
Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
13 Apr 2005
Would you be upset if someone spent millions of dollars to put your future retirement funds into a casino, while taking no risks with their own future?

Say hello to the Wall Street CEOs whose companies are aggressively lobbying for Social Security privatization. Because of their bloated compensation packages, these CEOs pay Social Security taxes only a few days a year.
Your Risk, Their Gain
By Scott Klinger

Would you be upset if someone spent millions of dollars to put your future retirement funds into a casino, while taking no risks with their own future?

Say hello to the Wall Street CEOs whose companies are aggressively lobbying for Social Security privatization. Because of their bloated compensation packages, these CEOs pay Social Security taxes only a few days a year.

The President has leaned on his Wall Street patrons to help with his faltering Social Security crusade. They have stepped forward, albeit blushing from embarrassment at their conflict of interest. These firms and their CEOs will handsomely profit from administering private accounts and collect billions of dollars in management fees.

Meet Kennedy Thompson, CEO of Wachovia Corporation, one of the Wall Street financial firms that have been most active in efforts to privatize Social Security. The company supports the pro-privatization Alliance for Worker Retirement Security and Citizens for Sound Economy. Thompson is on the board of the Securities Industry Association, Wall Street's principal lobbying group, which has advocated for Social Security privatization for over a decade.

As the country's third largest retail brokerage firm, Wachovia is well positioned to cash in on the establishment of private accounts, such as those advocated by President Bush.

In 2004, Wachovia CEO Thompson hauled in $13.3 million in executive compensation. He was essentially done paying his Social Security taxes for the year at end of January 2.

How is this possible? In 2004, Social Security tax was paid only on the first $87,900 of earnings. In 2005, the earnings cap was raised to $90,000. Over 94 percent of workers earn less than the earnings cap and have Social Security tax withdrawn from their paychecks until Dec. 31, according to the Economic Policy Institute. In other words, they pay Social Security taxes on 100 percent of their wage income. The effective rate of Social Security taxes on these “Joe” and “Juanita” taxpayers is 12.4 percent (6.2% contributed directly by the employee, and 6.2% by the employer).

But not CEOs like Kenneth Thompson. His effective rate for Social Security taxes was a microscopic 0.08 percent in 2004.

So the average “Joe” taxpayer pays an elephant-sized rate of Social Security taxes that is 152 times that of the flea-sized rate paid by CEO Thompson. If Thompson paid the same effective rate as Joe Taxpayer, he would have paid $1,654,644 in Social Security taxes, instead of $10,900.

In 2004, the CEOs of the 26 leading Wall Street firms advocating for social security earned an average of over $17.7 million. Because of the earnings cap, they were done paying their Social Security taxes an average of four days into the new year.

Seven of the CEOs were “taxpayers for a day.” Their salaries were so gargantuan, they exceeded the $87,900 earnings cap in eight hours or less. These include the CEOs of Bear Stearns, Charles Schwab, Goldman Sachs, Lehman Brothers, and Morgan Stanley.

The CEO of Wells Fargo, Richard M. Kovacevich, was the highest paid among the financial services industry, collecting $52.1 million in 2004. He was done paying into Social Security after 4 hours, or during the Pre-game show for the Rose Bowl on New Year's Day.

These CEOs are not men who will be depending on their Social Security check for their basic survival in their golden years. Yet they are advocating changes in the public pension program that could jeopardize the security of working Americans. They won't taste the bitter medicine that they are prescribing for others. But they will make billions for their companies and millions for themselves.

The Social Security system may face financial shortfalls after 2051. Privatizing Social Security will only worsen the problem, but there is one elegant fix that would help. We should eliminate the earnings cap so that CEOs like Kenneth Thompson pay the same effective rate as Joe and Juanita taxpayer. According to the Economic Policy Institute, this fix would eliminate 90% of the funding deficit projected by the Social Security
Administration.

If Wall Street CEOs pay into the system all year long, perhaps they'll have a greater stake in ensuring that we have a rock-solid retirement system that works for everyone, not just for their companies' profits.

***

Scott Klinger (sklinger (at) responsiblewealth.org) is a researcher at United for a Fair Economy and co-author of the new report, “Taxpayers for a Day: Wall Street CEOs Have Most to Gain, Least to Risk, in Social Security Privatization Schemes.” The full report is available at http://www.faireconomy.org/WallStreetCEOS.

This work is in the public domain.
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Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
14 Apr 2005
If I took $100.00 today and invested it in United States Savings Bonds I series, my rate of return would be a guaranteed 3.67%. If I were to die tomorrow, that money would pass to my family. That same $100.00 in the present social security system does not go into an account and does not bear interest in the traditional sense. When it comes time for today's 30 somethings to retire, if there are enough people alive and working to pay into the system, these thirty somethings will get a rate of return somewhere around 1%. If the thirty somethings die before they reach retirement age, the money that they paid into the system is lost. If a person invests conservatively, the risk is far less than the risk posed by social security.
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
14 Apr 2005
Sid, Social Security is simply one big insurance plan offered by the government to everyone who works. It's in everyone's interest to guarantee a decent quality of life for everyone who works. Social Security need never run out of money, because all we have to do is make sure that rich people and corporations stop dodging billions in taxes. Buying a savings bond is ultimately lending the government money--where do you think they're going to get the money to pay you when the bond matures, with interest? The same way they would pay social security benefits--with taxes. Also, how do you know what their rate of return will be without knowing howe long they will live to collect benefits? Why don't you just move to a country that lets people starve and live on the streets, or better yet out of sight in jails (there's a cost-effective solution at $30,000/yr.) and stop whining about how looking after the welfare of your compatriots hurts your bottom line. What are you saving up for anyway, a conscience??
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
15 Apr 2005
Well at least you admit that social security is a ponzi scheme. Why would I want to live in a country that lets people starve? I want to allow people to have their own private accounts so that they have something substantial to live on when they retire rather than a the equivalent of minimum wage. It's called allowing the working class to reap the fruits of their labor.
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
15 Apr 2005
I don't see why people can't have an opt-out option for social security. I'd rather direct my own payroll taxes into my own investment portfolio. Other people may rather leave it in the existing Social Security system. Of course, I would be ineligible for the benefits that people who stayed in the system receive.

The fact is, most people will just leave it in the system because it's easier than trying to manage it yourself. A relatively small minority would go through the trouble of pulling their money out and privately investing it.

What are the objections for having an optional social security system?
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
15 Apr 2005
The objection to having a privatized social security system is that the people who are most likely to opt out are those with the most money--and those are the ones who should be required to put more into the system (as the article argues), not opt out. With privatized pension systems, people would just get out what they put in. Social security is partially redistributive. Those who put in more still get more out, but some of what they put in is redistributed to the poorest. This is important because, given how little money poor folks make, there's no way they could survive on just their own savings when they retire. Many of them will never have enough savings to invest. People need this to survive during their later years. Yes, yes, some of you will probably start howling about socialism. It's not socialism--it's just a capitalist welfare state policy. There is a big difference--social security will hardly produce a classless society. In fact, our system is a lot more stingy than most of the public pension systems in Europe. It's about showing compassion to other folks who are less fortunate. And, nice as the idea is, our society is too complex and the problems too big for private charity to properly address them. Not to mention when the wealthy give to "charity" it tends to be big donations to the colleges they graduated from and things like that--not to desperately needed social services. Working-class folks tend to give more to those sorts of things, because they know with a little bad luck they could end up needing such help themselves. But the amount of money they have to give isn't enough to address all the problems out there, like I said. So for now, the only feasible solution is some form of public welfare system.
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
15 Apr 2005
So, you've gotten straight to the point. It sounds like you're saying that we can't let people opt out because those that do so will be the ones with the money.

I think that a system that would be more fair is essentially a government-backed 401k. You put into the system and the government matches some portion of your contribution. The poorer you are, the more they will match your contribution. If you're rich, perhaps they don't match anything.
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
16 Apr 2005
OK, so where are you going to get the money for the government to match people's contribution to the 401K plan if not from taxing rich people's paychecks?

There's really no way around--if we're going to provide even half-decent social services for poor folks, we need to get the money for it by taxing the wealthy in some fashion. At least that's the fairest way to do it, since the wealthy can best afford higher taxes. As it is now, because of all the loopholes in the tax laws, the middle class--which is becoming increasingly financially squeezed (adjusted for inflation, middle-class families' incomes have been going down since the mid-1970s; and middle-class families are falling ever deeper into debt from mortgages, credit cards and the like) actually bears a rather large share of the tax burden. Reversing the cutbacks in the capital gains tax would begin to fix that problem.
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
19 Apr 2005
Why should the rich be taxed more? They use fewer services than the poor. Shouldn't you be taxed according to the services that you use?
Re: Your Risk, Their Gain: Wall Street CEOs Lobby for Social Security Privatization
20 Apr 2005
The poor use social services more because they have less money--they can't afford privatized sources. If they have less money, how are they supposed to be able to afford to pay for the services?

I really don't get it. You seem to have this everyone for themself, don't look out for anyone but number one, I've got mine--screw you, attitude towards how we organize society. I'm just suggesting that those who are better off should lend a hand to those who are less fortunate, we should think of ourselves as a community in which we try to take care of each other. These are not really radical values. They actually seem kind of old-fashioned to me, certainly more old-fashioned that this "me generation" "greed is good" stuff, which is the monstrous offspring of the 1980s.