There is no Social Security crisis, or at least there wont be unless the presidents privatization plan goes through, said Rep. Peter DeFazio, D-Springfield, Monday.

DeFazio spoke with more than 30 citizens and civic leaders at the Chetco Community Public Library Monday morning as part of a South Coast tour to promote his new Social Security plan.

In what he called a short lesson on Social Security economics, he said, There is not an immediate crisis. Social Security is not on the verge of bankruptcy.

DeFazio said if nothing is done to fix Social Security, it will continue to be able to pay full benefits through 2038.

The problem will begin after that, when the system will be able to pay only 70 percent of full benefits.

DeFazio said by 2016, the system will begin to draw on the interest earned by the Social Security Trust Fund to pay full benefits. He said that is not a crisis, but the system working the way it was intended to.

By 2025, said DeFazio, the system will have to start redeeming its U.S. Treasury Bonds to continue to pay full benefits. He said those bonds are considered the safest investment in the world.

Only after the bonds are exhausted, in 2038, will Social Security be unable to pay more than 70 percent of benefits.

If Social Security is privatized, said DeFazio, the system will reach that point in 2024, instead of 2038.

He said President Clinton looked into privatizing Social Security, then backed away from it.

He said President Bushs push for privatization began in May 2001, when he hand-picked a commission to make recommendations to preserve Social Security.

DeFazio said the president laid out his criteria for the commission: Social Security must be privatized, keep benefits intact, use the surplus for the program only, not increase taxes, not allow the government to invest funds in the stock market, and preserve disability and survivor benefits.

The commission released three plans for privatizing Social Security. DeFazio said each fell short of the presidents goals, and none ensured the long-term solvency of the system.

Their plans would require some combination of huge transfers from the general fund, he said, which would result in major deficits, accelerating the insolvency date of Social Security, raising the retirement age and cutting future retirees benefits.

If we divert current Social Security income to privatization, he said, the Social Security problem will be twice as big.

DeFazio said privatization wont solve Social Securitys problems, but will provide fees for Wall Street.

He said the privatization of social security systems has been tried only in Chile and Great Britain.

He said the only people who ended up with any money were the ones managing the plans. In Chiles case, that was the military.

In Great Britain, said DeFazio, the privatization effort went down in history as the mis-selling scandal.

He said hundreds of thousands of people were defrauded, and the government had to pay to cover those people again.

In the United States, he said, the transition cost to privatization will be $2 trillion. With that kind of investment, he said, we could solve the present problem easily.

There is no free lunch, said DeFazio. He said the only ways to keep Social Security solvent are to reduce benefits, raise the retirement age or increase taxes.

Though Social Security is facing no immediate crisis, said DeFazio, he recommended moving ahead to solve the problem now, instead of waiting until 2035.

DeFazio has come up with his own plan to do just that. House Resolution 3315 is called The Social Security Stabilization and Enhancement Act.

DeFazio would fund it by lifting the cap on earnings above $84,900, which are currently not subject to the Social Security tax.

My plan merely makes the payroll tax burden more equitable by raising the wage cap and treating wages the same for Social Security as for Medicare, he said.

This change would only impact the top 5 percent of wage-earning Americans, he said, and would actually reduce the tax burden for those who earn less than $88,900.

DeFazio said his plan would exempt the first $4,000 in wages from the Social Security payroll tax. He said most Oregonians would receive a tax cut with his plan.

The plan would also increase benefits for those currently 85 or older. He said most of those are widowed and often outlive their savings.

DeFazio said his plan would allow a portion of the Social Security Trust Fund to be collectively invested in stocks and bonds by a private board, similar to the Oregon Public Employees Retirement System.

The plan would also fully protect current Social Security disability benefits.

It would compute benefits from the 38 highest earning years, instead of the current 35, but would give people three years to stay home to care for children without being harmed by the change.

In contrast, said DeFazio, the best private plan would work only if people could invest the 2 percent of their accounts they would receive well enough to replace the 40 percent of current benefits they would lose.

He said the privatization plan would also require that people buy annuities when they retire, even if the market is poor at that time.

I dont think making the problem worse is the solution to Social Security, he said.

One citizen was concerned about the administrative costs of Social Security if it is privatized.

DeFazio said big companies have already said they dont want to track Social Security payroll tax payments to individual accounts. He said that would require a whole new system.

He said every account would carry a management fee of 1-2 percent, which would reduce benefits over 30 years.

It would be very expensive, he said.

Another citizen said Social Security has become another cash cow for Congress to milk.

DeFazio said Social Security was actually a pay-as-you-go system until 1977.

He said the trust fund was then created in anticipation of the retirement of the baby-boomers.

He said there wasnt any surplus to play with until then, though President Johnson used the cash flow to make the Vietnam War look less expensive than it was.

DeFazio said the surpluses are now routinely borrowed, but the trust fund always receives U.S. Treasury Bonds in return.

He said some have suggested keeping the trust fund safe by placing it in the hands of the Federal Reserve Board, but he didnt agree.

He called the Fed a secret society and said he didnt trust Fed chairman Alan Greenspan.

DeFazio said he would rather give some of the surplus to a board of trustees to invest to increase the rate of return.

He also said if the surpluses were dedicated to paying down the national debt, it would save billions of dollars a year in interest that could be devoted to Social Security.

DeFazio said 2000 and 2001 were the only years the trust fund was not borrowed, because there was a national budget surplus in those years.

He said the 10-year national surplus that was projected is now gone. He said 41 percent of it will go to tax cuts, 11-12 percent will go to increased defense spending, 10 percent will go to other spending, including Homeland Security, 21 percent will be lost in the recession, and technical adjustments will eat up 16 percent.

He said the president wanted to cut taxes for the rich because they pay more taxes.

DeFazio felt tax cuts should be frozen while there is no national surplus.

One citizen asked why people born in the notch group between 1917 and 1927 get lower Social Security benefits.

DeFazio said a commission that studied the problem concluded the notch group does not get too little, but people born before 1917 get too much.

DeFazio didnt agree with that commission and tried to launch an investigation. He said Congress wouldnt let him bring it up, so nothing will be done about the problem.

Another citizen said young people believe the government will spend their Social Security money and will never pay them benefits.

Thats not true, said DeFazio. We need a high school civics class on Social Security. Its not just an investment, its an insurance program.

He said if a person is disabled, Social Security will pay that family up to $300,000. It also provides $250,000 in life insurance.

Plus, said DeFazio, even if Congress does nothing to fix the Social Security problem, young people can still count on collecting 70 percent of their benefits when they retire.

Social Security is actually a very good deal, said DeFazio.