On October 3, the Senate Finance Committee held a hearing to examine the recommendations of the President’s Commission to Strengthen Social Security.
In his opening remarks, Committee Chair Max Baucus (D-MT) expressed concern “that the President’s proposal and the Commission’s report take us down the wrong track.” He noted that “Social Security represents a solemn commitment from one generation to the next and is the major source of income for most of the elderly,” and added, “Without Social Security, more than half of elderly women would be living in poverty.”
“We should not be badmouthing the proposals that are on the table,” responded Sen. Chuck Grassley (R-IA). “If we don’t do something, we won’t be able to keep our promise to seniors,” he added.
One of the witnesses, Dr. Olivia Mitchell of the Wharton School of the University of Pennsylvania, served on the President’s Commission. She told the Senate panel that the commission proposed three reform plans, “all of which recommend that personal accounts be established within the context of the Social Security system.”
There is probably “no perfect solution” to improving the sustainability of Social Security, she said. “Meeting the challenges of Social Security via personal accounts seems to me, and seemed to the commission, to be a preferable path to the unappealing alternatives, namely raising taxes, or cutting benefits,” she added.
According to Dr. Mitchell, “the main reasons to create personal accounts in Social Security are positive, not negative.” She cited some of the benefits of “a properly designed Social Security personal accounts system,” including “a permanently sustainable Social Security system, higher benefits than the existing system can pay, greater national saving, greater individual control, inheritance rights, and, as co-chairman Senator Daniel Patrick Moynihan has emphasized, the first opportunity for millions of Americans to accumulate wealth.”
Additionally, Dr. Mitchell testified that the commission “sought to enhance the safety net for certain vulnerable populations, particularly divorced women who currently gain no entitlement to benefits based on their years of marriage, despite being at very high risk of poverty.” She added, “We also proposed benefit enhancements for surviving widows and widowers most at risk for low income in old age.”
Former Congresswoman Barbara Kennelly of the National Committee to Preserve Social Security and Medicare told the committee that the final report of the commission “contains a number of assertions that are either misleading or false,” including the contention of the report “that its privatization plans would provide a net improvement for women, while suggesting that the current system has not served women well.” She explained, “Privatization is inherently problematic for women, as they tend to spend more years outside the workforce, earn less on the dollar than do men for the same work, and are less likely to have any other sources of retirement income.”
Outlining her concerns with the commission’s three options, she told the committee that each plan would significantly reduce retirement benefits and sharply cut survivor disability benefits. “Finally, each plan lacks important details on how the proposed private accounts programs would actually work,” she said. “Privatization sounds appealing in concept, but it is fatal in reality,” she added.
Esther “Tess” Canja of AARP also expressed concerns about the impact of private accounts on women. “Social Security is critical to women’s financial security because they live longer and depend on benefits for a larger share of their retirement income,” she said. “Women benefit from Social Security’s lifetime guarantee, which, unlike investment accounts, cannot be outlived,” she explained. Women also benefit from Social Security because benefits are “adjusted annually for inflation in order to help keep pace with the rising costs of goods and services,” she pointed out. This adjustment prevents women from becoming poorer as they age and are faced with higher medical costs. “Both the lifetime guarantee and annual inflation adjustments are rarely available with individual investment accounts,” she added.
