Monday, February 14, 2005

Selling Social Security

Over the past couple of weeks I've written a few things about the current Social Security debate which have generated more commentary than what I usually get. I'm grateful not only for the readership, but also for the responses, from which I've learned quite a lot -- not necessarily about Social Security, but about our perceptions of it.

The Democratic leadership is right on this, but we're at risk of losing the public relations war. One of the recurring criticisms is that it's a partisan agenda motivated primarily by our distaste for anything generated by this administration.

The party is, and should be, opposed to privatizing Social Security, but the most important point to make is not our opposition, but rather that Bush's plan cannot do what he claims it will. That's really the issue here.

We should embrace the ideals that President Bush and other conservatives are putting forward. We should encourage people to plan for their own retirement. (Reducing and eliminating the portions of the population who live paycheck to paycheck and have nothing left over with which to save or invest should be a priority.) We should find ways to encourage small-scale private investment. We should emphasize personal responsibility and fiscal discipline, even if we can't point to role models in the government. All of this, however, should be over and above our commitment to the current program.

  • Bush's plan is fantastically expensive and financially unsound. No financial advisor would tell you to take out a loan to invest in the stock market or to purchase stocks on credit and hope that you make enough money not only to profit but to pay back the loan and its interest. But that is exactly what Bush intends to do; in a time of record debt, he proposes borrowing trillions (by some estimates, the cost could total $15 trillion over 30 years) to pay for the transition.
  • It doesn't solve the shortfall. The White House's own analysts admit that the Bush plan will have no effect on the shortfall which is anticipated around the year 2042.
  • Guaranteed Risk. Right now from the time you retire until the day you die, you can count on a guaranteed dollar amount each month and certain benefits. Under the Bush plan, your personal account would have to see sustained growth at better than 3% in order for you to do better than the current system. If there was a recession or depression, you stand the risk of having significantly less to draw on.
  • Limited. Once you stop working, you stop diverting into your personal account. Whatever you've invested is all you have. It's up to you to make that resource last the rest of your life.
  • Where do you invest? A recent letter in the New York Times pointed out, "If President Bush's Social Security plan were in effect in the late 1940's, when I was starting my career, prudence would have guided me to invest in corporations like Anaconda Copper Mining, the Pennsylvania Railroad, the New York Central Railroad, R.C.A. and Pan American Airways - all of them giants of their day. And what kind of retirement would they have provided me?" Enron, also, would have looked like a solid investment.
  • Reduction of Benefits. Bush wants to tie Social Security benefits to the cost of living index, which according to experts on both sides of the debate "would significantly lower guaranteed benefits."
  • Flawed Analysis. Using a worst-case scenario projection, Bush foresees a multi-billion dollar shortfall in the Social Security budget around the year 2042. Such an outcome is entirely possible. However, if you apply his own plan to the same forecasts, retirees come out significantly better under the current system, even if it is unchanged. Bush uses a very optimistic vision of economic recovery to promote the "personal accounts" idea; if you apply those numbers to the current system, there won't be a budget shortfall.
  • Not the real crisis. Bush's Medicare bill, passed in 2003, will cost almost twice what he promised it would; the new total is almost seven times more expensive than the projected Social Security shortfall. The Medicare bill goes into effect in 2006 and by 2015 will have cost $720 billion; even the most ardent supporters of Bush's reforms say that Social Security is completely solvent until 2018, while other projections say it's safe until as late as 2052 or beyond.

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