Retirement Insights
By Karen Gilgoff
The victorious George W. Bush has claimed a "mandate" on a variety of issues, but it's hard to see one for his plan to replace a portion of Social Security with private-investment accounts. According to one recent poll, only 6 percent of voters said a candidate's position on Social Security was a major reason for their Presidential vote. According to another, the nation stands divided over Bush's proposal: 51 percent said it was unlikely that the so-called reform would "make sure Social Security benefits are there for people like me." There's no question, however, that the President intends to push for partial privatization.
AFSCME strongly opposes investment accounts as a risky substitute for guaranteed benefits. Every proposal for such accounts requires future benefit cuts of as much as 40 percent. To make up for that loss, workers would need sizeable investment returns in their private accounts, which many won't be able to achieve.
Private accounts, therefore, are no free lunch. They contain many hidden costs. Here's a big one: If we take money out of Social Security now in order to start funding private accounts for younger workers (which is what President Bush is threatening to do), there will be less money in the trust funds to pay benefits to current retirees and workers nearing retirement age. New revenue of $2 trillion over the next 10 years will be needed to cover all the bases. That kind of money normally requires cutting benefits for current retirees or raising payroll taxes.
RX: GO OFF-BUDGET. The White House and Republican lawmakers apparently are hoping to avoid such painful choices by borrowing the money to pay for private accounts — despite federal deficits nearing an historic $500 billion a year. To get around that major inconvenience, Bush & Co. are trying to figure out how to go "off budget" so the loans won't show up in debt calculations.
Even some fervent privatizers see the smoke and mirrors behind this idea. "How they label it is going to be somewhat of an exercise in creative budgeting," says Michael Tanner, of the pro-privatization Cato Institute. Opponents of privatization are amazed that the White House would even consider such a proposal. "We're entering the theater of the absurd, where you spend money but it doesn't count, and you borrow money but you deny it," says Sen. Kent Conrad (D-N.D.). As our own President McEntee points out, the prospect is especially foolish because private accounts do nothing to enhance Social Security's long-term finances — they cost money.
Even the conservative Wall Street Journal editorial page agrees with that view. "Don't be fooled by arguments that higher returns from the stock market can fill the Social Security funding gap," writes the Journal's Alan Murray. "As Federal Reserve Chairman Alan Greenspan has said in more nuanced language: That's a baloney sandwich." We will be telling the Bush administration: "No baloney!"
10 Reasons to Oppose Private Accounts
They will:
