Social insecurity: Social Security is much more than the retirement program people think it is. A look at its creation, the debate over privatization--and why it matters to you.

TEACHING OBJECTIVES

To help students understand the current debate over Social Security: whether to keep the 70-year-old government-guaranteed retirement and social-insurance system basically as it is, or to allow workers to invest part of their Social Security taxes in private, or personal, accounts.

"RUGGED INDIVIDUALISM": Stanford University historian David M. Kennedy says it was only the severe economic pain of the Depression that pushed Americans to break loose, at least to some extent, from their traditional belief in "rugged individualism." Ask your students to define "rugged individualism."

President Bush says one of his goals in revamping Social Security is to lessen Americans' dependence on government programs. Why might the President want to cut dependence on such programs? Does dependence on government programs weaken society in some fashion?

INTERVIEW/POLL: This article provides the foundation for a student poll of two groups--grandparents or other older people; and parents and other younger adults--about how they would be affected by President Bush's proposed changes.

Students' first task is to ask for a simple "yes" or "no" on the President's proposal. Students may also construct additional questions as a class exercise.

Here are a some possible questions:

* Why would grandparents want, or not want, to depend on private investments for part of their retirement income?

* Why do younger adults like, or not like, the idea of being able to invest part of their Social Security taxes in private accounts?

DISCUSSION QUESTIONS

* Is there a contradiction between Americans' sense of self-reliance and their embrace of Social Security?

* Projections of when Social Security will begin running short of funds vary widely. Why do you think people differ on estimates of the program's long-term health? Are their political views a possible factor?

WEB WATCH: www.ssa.gov/history/pdf /histdev.pdf provides a brief history of Social Security.

By 1934, it was not hard to make the case for creating the Social Security system. The Great Depression, beginning in 1929, had devastated the nation's (and the world's) economy, with employment, pensions, the stock market, and savings all suffering. Many older Americans found themselves suddenly, and shockingly, in economic freefall.

"A great calamity has come upon us, and seemingly no cause of our own," declared a 69-year-old architect, one of millions of Americans who wrote to President Franklin D. Roosevelt and Mrs. Roosevelt, pleading for help. "It has swept away what little savings we had accumulated and we are left in a condition that is impossible for us to correct."

More than 70 years later, as Congress and the nation debate the future of Social Security--and in particular, whether to allow workers to direct a portion of their Social Security taxes into private investment accounts--the relevance of this history is becoming a matter of fierce dispute.

Isn't it time, many Republicans argue, to reinvent a Depression-era program for a more financially savvy generation that trusts the market? Or, as many Democrats assert, are Republicans ignoring a cautionary history that high-lights the value of a guaranteed government benefit?

Social Security is perhaps the most inclusive government program, with an estimated 96 percent of all American workers participating in the system. And while Americans love to talk about self-reliance, they also love to vote for politicians who provide them with pension and disability checks. For this reason, the idea of tinkering with Social Security has long been considered "the third rail" of American politics--touch it and you die.

WHO GETS BENEFITS?

Social Security has always been more than a program for retirees. Today, retired workers and their dependents do account for 69 percent of the benefits paid out, but 17 percent of the benefits goes to disabled workers of all ages and their dependents, and the remaining 14 percent goes to survivors--including some 3 million children under age 18--of workers who have died. (It's unclear how, if at all, nonretirement beneficiaries would be affected by any changes being discussed.)

As part of his concept of an "owner ship society," rather than one that depends on government programs, President Bush wants to let U.S. workers take part of their Social Security taxes and invest it themselves. Bush and other advocates of private, or personal, retirement accounts contend that people would earn more money for their retirement by investing some of their tax dollars on their own.

In seeking to partially privatize Social Security, proponents are counting on a more independent generation of Americans who are more comfortable with investing in the financial markets. Private accounts are "a no-brainer," according to Aaron Kotok, a 28-year-old Harvard law student. "I trust in the market, long term," he says. "I don't trust that an entirely government-run system is going to work."

But critics of privatization say letting people invest some of their Social Security taxes in unpredictable private accounts is too risky and that money put in private accounts could mean less money for traditional benefits. (See Debate, p. 33.) "Social Security is supposed to be a guaranteed safety net," says Teresa McMains, 28, a software consultant who lives in a Boston suburb. "If you invest it in the stock market, you take away the guaranteed returns. Even if there is opportunity for greater returns, there is inherent risk in the stock market."

NOT LIKE WELFARE

Even in 1934, historians say, it was not easy to resolve the political tensions over what individuals could and should accomplish on their own, and what Americans could better do collectively. That's why Roosevelt and the other architects of Social Security tried to construct a peculiarly American form of social insurance, one that recognized the strain of individualism that runs deep in the national psyche.

Roosevelt insisted that the new program not look like a welfare program, his aides later explained; rather, it should resemble a private insurance plan, with benefits tied to individuals' contributions in their working years.

Social Security still operates on the same principle. It is financed through a 12.4 percent payroll tax, half paid by workers--the 6.2 percent deduction for Social Security Tax, or FICA (Federal Insurance Contributions Act), on your paycheck--and half by their employers.

The system was set up to operate on a "pay as you go" basis; that is, today's workers pay the benefits for today's retirees, with each new generation of workers paying for the benefits of the corresponding generation of retirees.

So what's the problem? In a word: demographics. There are now 3.3 workers paying into the system for each person receiving benefits, with money not needed for current benefits going into the Social Security Trust Fund. But as the population ages, it is projected that the ratio will fall to 2.1 workers per beneficiary. At some point, the government would need to draw on the Trust Fund to continue paying promised benefits. By 2042, according to some projections, the Fund would be exhausted and benefits might have to be reduced.

In order to keep the system in the black beyond the middle of this century, some changes will have to be made, either in the amount of revenue the system takes in or in the benefits it pays out. Part of the current debate is that critics of private accounts say they do not address the solvency problem directly. Bush acknowledges this but says that, in the long run, private accounts will be more profitable for Americans than the current system.

In a way, this debate is nothing new: The original debate over establishing Social Security was deeply influenced by the idea of individual ownership. In fact, while the movement for social insurance and old-age pensions had been building for years, it took the Depression to overcome resistance to it. "It's not an accident that only in the context of that protracted trauma did we get such a departure from our notion of laissez-faire, rugged individualism," says David M. Kennedy, a Stanford University historian.

'NEVER A DEPRESSION LIKE THIS'

The trauma for the elderly of that era can hardly be overstated. Before the creation of the Social Security system, some Americans had private or state pensions, but most supported themselves into old age by working. The 1930 Census, for example, found 58 percent of men over 65 still in the workforce; in 2002, by contrast, the figure was 18 percent. The elderly also relied heavily on their families.

The Depression swept this world away. Many older people could no longer find work. Many who had a pension or savings saw them disappear. And many who relied on their children saw them buckle under the strain.

"I am in no position to do the right thing for my mother, one woman wrote to Roosevelt. "I thought as long as I lived there was no need to worry about her being taken care of, but I never dreamed of a depression like we have had."

THINKING NEW AGAIN?

Roosevelt sent his Social Security plan to Congress in January 1935, and by August he signed it into law. Some New Deal advocates wanted a more extensive program, but the law was widely seen as a moderate compromise. Still, the idea of Social Security was then so new and controversial that many people considered it socialism.

"We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life," Roosevelt declared. "But we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."

Today, opponents of partially privatizing Social Security say the guaranteed benefits of a traditional social insurance program are still the best way to protect people, and that the balance struck by Roosevelt was just right. But advocates of private accounts argue that it is time to think anew.

Either way, Social Security is likely to be the most controversial domestic issue of President Bush's second term.

Social Security and Private Accounts

A poll in January found younger
people were more likely to think it
was a good idea to allow individuals
to invest part of their Social Security
taxes on their own.

AGE     BAD IDEA   GOOD IDEA

18-29      36%        61%
30-44      45         50
45-64      54         39
65+        69         25

SOURCE: THE NEW YORK TIMES/CBS NEWS POLL

Note: Table made from bar graph.

Who Gets Social Security Benefits?

In 2005, almost 48 million Americans will receive
approximately $509 billion in Social Security benefits.

Survivors of deceased
workers (including
some 3 million
children under 18)      14%

Disable workers
& their dependents      17%

Retired workers
& their dependents      69%

SOURCE: SOCIAL SECURITY ADMINISTRATION

Note: Table made from pie graph.

QUIZ 2

Social Insecurity

1. The major Social Security debate of 2005 is whether to

a reduce the age at which retirees may receive Social Security benefits.

b increase scheduled Social Security payments.

c force young workers to continue to contribute to Social Security.

d allow workers to divert part of their Social Security taxes into private investment accounts.

2. Even during the economic chaos of the 1930s, some people opposed Social Security because they said it conflicted with

a the Constitution.

b individualism in the American psyche.

c various state Laws.

d America's religious heritage.

3. President Bush envisions a new type of society, one in which citizens are not dependent on government programs. He calls this new society an

a ownership society.

b open society.

c secure society.

d great society.

4. Social Security is paid not only to retirees. Some 3 million children under age 18 receive Social Security

a because they have been injured while at work.

b to help compensate for Low family income.

c because they are survivors of workers who have died.

d to help fund their education.

5. The major funding problem faced by the Social Security program in the future stems from

a mandated increases in payments to retirees.

b the fact that there will be fewer workers per retiree who wilt be paying into the system.

c the fact that more money will have to be drawn out of the system to pay for other government programs.

d a projected decline in the value of the dollar.

Answer Key

1. (d) allow workers to divert part of their Social Security taxes into private accounts.

2. (b) individualism in the American psyche.

3. (a) ownership society.

4. (c) because they are survivors of workers who have died

5. (b) the fact that there will be fewer workers per retiree paying into the system.

Robin Toner in Washington

Robin Toner covers politics for The New York Times; additional reporting by Kate Zernike of The Times and Patricia Smith.