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View Diary: Paul Ryan Not Asking For Social Security Cuts, Why Is Obama Insisting On Them? (137 comments)

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  •  Attacking Social Security Is the Plan (0+ / 0-)

    When Obama puts cuts to Social Security on the table, like "chained CPI", which would cut the payouts over time, he's sending the message that Social Security is broke and we should change it. This exactly fits the privatization effort. People who don't understand what the program is or how it is funded will think, "It must need to be fixed. Why not privatize it?"

    The reason some people want to privatize it is because it would shift that money from being handled by the government to private financial institutions. Those are the same companies that currently provide mutual funds and other financial services to the public. When the government handles these funds there is no profit and the expense of doing it is handled by the Social Security Administration.

    The SSA costs about 0.6% overhead. (This varies from year to year and has been under a half percent or over three-quarters percent at various times. This does not include the part of the cost for disability, just the part for managing claims from retirees.)

    A typical Wall Street fund charges between 1.00 and 1.75% to manage a mutual fund. That is in addition to the load (the sales commission), which is typically 5% for buying or selling the fund. So, if we were to privatize Social Security, the industry would profit from all the money flowing through the system. Their profit margins on existing funds are high enough to make them some of the most profitable (and profligate) companies in the world. They stand to gain enormously from having three-quarters of a trillion dollars go through their doors every year.

    Servicing the additional accounts wouldn't even cost them that much because most of their costs are already covered in setting up and running the existing funds. So, other than the cost of selling to the public, this would be mostly profits.

    This is why they fund candidates and why candidates keep saying that Social Security is broke and should be privatized.

    Democrats need to hammer home the simple concept that Social Security and Medicare funding are a reflection of the sorry state of wages and jobs in this country. Whenever someone talks about cuts to these programs we need to point out that no cuts are needed. What's needed is to get wages up and have workers work more hours. Wages have dropped substantially as a percentage of business income. Wages for typical workers have declined while worker productivity has gone up over 80% in the last few decades. This is not normal. Unemployment averaged almost a percent lower since the 1980s. This is due to wage pressure from foreign competition opened up with free trade agreements. This has caused a massive drop in funding for Social Security and Medicare, and fixing it not only fixes those programs but helps the economy as a whole.

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