Social Security - The Campaign is On

The news reports that Bush is pulling out all stops to sell the Social Security crisis and his plan to "save" it. He is mobilizing his Presidential Campaign machine and buying ads to blitz the country. He is back on the "campaign" trail - this time on Social Security. [Congressional Republicans Agree to Launch Social Security Campaign, A Big Push On Social Security, Bush Takes Social Security Campaign on the Road]

For as far as the Bush plan undermines Social Security, conservatives don't think it goes far enough:

At a retreat here attended by more than 50 representatives in the conservative House Republican Study Committee, its chairman, Representative Mike Pence of Indiana said the members' objections to new or increased taxes to pay for the president's plan was deafening. Mr. Pence said the group also called for allowing workers to set aside 6 percent, instead of the president's proposed 4 percent, of their wages, roughly all of their Social Security payroll tax, for individual accounts.

Many of the group's members support a proposal by Senator John E. Sununu, Republican of New Hampshire, and Representative Paul D. Ryan, Republican of Wisconsin.

Beyond endorsing those proposals, they said they wanted to use the debate as a wedge to achieve their long-held goal of shrinking the size of government. (emphasis mine)

It is important to realize that the Social Security issue really is about ideology, and not about the best interests of the people. Bush is quoted in a January 11, 2005 Wall Street Jouranl interview as saying" ""It's exciting to be part of stimulating a debate of such significance," he went on. "It really is the philosophical argument of the age."

There is analysis and counter analysis emerging all over the place about the privatization of Social Security. These are not "personal accounts," the term being used to get away from the "unpopular" privatization word. Individual Retirement Accounts are "persona accounts." Money placed IRAs is not deducted from your Social Security benefits. The "PAs" being pushed by Bush are deducted from benefits. Those participating in the program (assuming there would be a choice) have the amount of the investment plus the interest earned matching Social Security's rate. I believe that is roughly 3%. Therefore, PA holders would need to earn over 3 percent on their individual investment to go above breaking even. There is no stock market guarantee that would be the case (NY Time, 2/05/05).

There are some class differences (of course) in how the PAs would work (from the above article):

Those who had low wages in their working years would be required to put at least part of the money in their accounts into lifetime annuities, instruments that make a guaranteed monthly payment for life but then expire and cannot be left to heirs.

Retirees who were more affluent could invest or spend their accounts as they wished.

But the guaranteed monthly payments from the government would be determined as if the tax money they had paid to the government were reduced by the amount in the hypothetical shadow account.

So if you are a worker earning low wages, then your choice of investment is not up to you and your heirs get nothing. If you are affluent, you have both choices and inheritance. Now that's an equal system for you.

By some accounts, Wall Street is not all that trilled about Personal Accouts because it would bring too many little fish into the market. The cost of maintaining millions of small accounts would be a burden on the system. I imagine that fees for managing such accounts would be added in. That further increases the amount of return a worker would need in order to match the current system.

It is not at all clear that even accepting the analysis of the Bush team on Social Security, that the plan would be a fix for the overblown problem. According to an analysis by Business Week:

Are private accounts really a good idea? The short answer is, they could be -- but only if Americans are willing to wait several generations for the higher returns to make up for Social Security's expected shortfall. The gap is so large -- $3.7 trillion in today's dollars -- that even if the stock market matched its historical average, private accounts wouldn't fill the gap for something like 90 to 100 years. And that doesn't even count the extra $1 trillion to $2 trillion in transition costs required to set up such accounts.

Watch out for hyperbole!

Campaign for America's Future has a Congressional email campaign against the privatization of Social Security.

Resources
A lot of recent articles are referring to the Stephen Goss memo and the Commision to Strengthen Social Security's report. I believe that the documents below are the ones in question. It is possible that there has been a more recent memo from Goss to Blahous - but I can find no copy of it.

President's Commission to Strengthen Social Security Meeting Report

Stephen Goss Memo to Mr. Richard D. Parsons, CEO, AOL/Time Warner Honorable Daniel Patrick Moynihan, Woodrow Wilson Center Charles P. Blahous, National Economic Council, Revisions of Estimated Unified Budget Effects and Summary General Revenue Requirements for Commission Models--Information

Posted by rowan at February 6, 2005 7:38 AM | TrackBack | [eMail this article!] |