Andy Stern: Invest Social Security Funds In Wall Street
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Andy Stern, a key member of the deficit commission, is pushing to invest a significant portion of the Social Security trust fund in private companies through the stock market, the former labor leader told HuffPost.
Stern, taking a break from one of the few public meetings of the National Commission on Fiscal Responsibility and Reform, said that Social Security "needs to be, like any pension fund, brought back into balance."
There were several ways to bring the fund into balance, he said, but one that he favors consists of "investing some percentage of government money in the stock market, as they do in Canada. Not individual taxpayer money, but government money."
Stern said that Canada's retirement system invests roughly 15 to 20 percent of its funds in the market, a range he thought reasonable. "There are lots of mechanisms for governments to be prudent investors," he said.
Wall Street has long sought access to Social Security money and opponents of cutting Social Security have been closely watching Stern, the former head of the Service Employees International Union, worried that he may back privatization efforts.
According to Brad Delong, a senior Treasury official in the 1990s, President Clinton's plan to reform Social Security included such an element. Rep. John Spratt (D-S.C.), chairman of the Budget Committee and a member of the deficit commission, has also endorsed the idea.
Allowing Social Security to invest some of its fund does have some progressive backing. "I don't think it's necessarily a bad idea," said Dean Baker, an economist with the liberal-leaning Center for Economic Policy and Research. "If he's talking about getting money out of the trust fund for that purpose, I could live with it. You'd get a higher return now that stocks are falling."
The late Robert Ball, a New Deal liberal who first began working for Social Security in 1939 and helped negotiate reform through the Greenspan commission in the early 1980s, championed the idea, suggesting that gradually investing a sliver of the fund each year until around 15 percent was put in would address roughly a quarter of the projected shortfall.
Nancy Altman, co-director of Social Security Works, which is fighting cuts to the program, previously worked with Ball on the plan, which became known as the Ball-Altman Proposal. She told HuffPost that if done cautiously, investing in the market comes with little risk because of the long-term time frame of the investment.
That risk is too great to gamble the fund, says Jane Hamsher, whose blog Firedoglake.com has been closely covering the commission deliberations. She highlighted the bad investments made on behalf of a New Jersey state pension fund by Obama-backer Orin Kramer and the scandal involving Steven Rattner and a pension-fund kickback scheme.
"Steven Rattner and Orin Kramer should not be allowed to touch Social Security," said Hamsher. Investing Social Security funds in the market ignores the corruption at the heart of Wall Street, she said. "It's a Ponzi scheme run by con artists," she said of the market. "Why do you take that risk for three percent? Wall Street wants their hands on the money. Who's going to pay these fees? And we're doing this why? So Pete Peterson doesn't have to pay his taxes?"
Dean Baker said it would be reasonable to assume a six or seven point return, greater than the roughly three percent return on Treasury bonds, a difference Hamsher said was too small to risk the system.
Pete Peterson is a billionaire hedge fund manager dedicated to cutting Social Security. He funds the Fiscal Times, which partners with the Washington Post.
Stern has apparently been reading the Ball-Altman plan. He told HuffPost that another way to help balance the Social Security's inputs and outputs would be to make sure that 90 percent of all wages are subject to a Social Security tax, as Congress has intended. Today, he said, only about 84 percent of wages are covered.
The suggestion comes straight from Ball's proposal. The background: When Congress initially set the cap at which no further Social Security taxes are paid - it is now $106,800 - it was set so that it would continue to capture 90 percent of wages. But because working class wages stagnated over the last few decades while upper class wages soared, the way the cap was set caught fewer and fewer wages. Today, said Jalt, only about 83 percent of wages are covered. Increasing that gradually back up to 80 percent - Ball suggested phasing it in over half a century - would reduce roughly a third of the imbalance.
Stern, in the brief interview with the Huffington Post, didn't mention the third leg of the Ball-Altman plan, dedicating the estate tax to Social Security, which would make up the rest of the difference.
While Altman said she still stands by her and Ball's plan, none of it would be necessary if Congress simply applied a miniscule tax to financial transactions of a quarter of one percent, as the United Kingdom does. Seniors, she said, could even get a five percent bump up in benefits.
The commission, which is packed with deficit hawks, met publicly on Wednesday, a departure from the panel's generally private meetings.
A leading commission member, former GOP Sen. Alan Simpson, in calling for cuts in a recent interview, said the goal of the panel was to protect the "lesser people."
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First Posted: 06/30/10 05:05 PM ET Updated: 05/25/11 05:55 PM ET