Experts Respond To Bush On Social Security

In recent days Sen. John Kerry has alleged that President Bush’s privatization plan for Social Security would harm the retirement system’s finances, cut guaranteed benefits, and require a $2 trillion subsidy from the taxpayers to cover transition costs. President Bush’s charge that Senator Kerry is misleading the public and that he has never used the word privatization. But in fact, the president told ABC News in 2002, “What privatization does is allows the individual worker — his or her choice — to set aside money in a managed account with parameters in the marketplace.” [ABC News, Oct. 29, 2002]

No matter what you call it, it is important that the media focus on what the President would do to the Social Security system in a second term. The Campaign for America’s Future invited a number of Social Security experts to comment on the unfolding Social Security debate. Their statements are listed below.

This pattern of simultaneously advocating Social Security privatization and running away from the word “privatization” has become a regular tactic for pro-privatization candidates. Fearing voter backlash, the National Republican Congressional Committee advised candidates not to use the word “privatization” when discussing the Republican plan for personal retirement accounts in 2002. For more on the privatization debate during the 2002 election cycle, see:
http://www.ourfuture.org/issues_and_campaigns/socialsecurity/key_issues/elections_and_social_security/index.cfm

Henry J. Aaron
Senior Fellow, The Brookings Institution, (202)797-6121

George Bush now says that he has not used the term “privatization” to characterize his plans to siphon payroll taxes from Social Security into individual accounts, although the essence of most privatization plans is to shift funding from Social Security to individual accounts.  Who cares whether he actually used that word?  In the same sense, he did not actually say: “Mission accomplished” when he strutted under a banner proclaiming those very words and following which hundreds of Americans have died in Iraq. 
 
The word “privatization” has gotten a bad name after the financial devastation that millions of investors suffered during the stock market meltdown of 2001.  That event made clear that private investments account are inherently incapable of doing what Social Security was created to do and must continue to do—assure basic income—to retirees, the disabled, and survivors.  Now Mr. Bush embraces principles that define privatization and hides from the term that those principles define.  One can only fear the economic casualties that may result if he is re-elected and tries to accomplish this mission.

Kenneth Apfel
Former Social Security Commissioner (1997 – Jan. 2001); currently a Professor at UT Austin, LBJ School of Public Affairs, (512)471-6267

The Bush Social Security plan poses a major threat to the economic security of future generations of older Americans. And it also poses major risks for current beneficiaries.  At its heart, the proposal destabilizes the financing base of Social Security, which could over time threaten benefit commitments to current beneficiaries — maybe not in 2005, but very possibly within a decade. To “save” Social Security, we don’t need to weaken Social Security’s financing base — we need to strengthen it.

Maya Rockeymoore, Ph.D.
Vice President for Research and Programs, Congressional Black Caucus Foundation, (202)263-2800

During his tenure, President Bush convened a Social Security reform commission comprised of members who all supported Social Security privatization.  While President Bush may now object to the use of the “p-word”, in reality his plan for Social Security would divert at least $2 trillion in federal funds to high-cost, high-risk, privatized invdividual account that would be invested on Wall Street.  By anyone’s objective definition, this scheme can be called “privatization.”

Heidi Hartmann, Ph.D.
President, Institute for Women’s Policy Research, (202)785-5100

Women particularly will be hurt by privatization plans.  Women earn less than men when working and take more time off for family care.  They therefore would have less to invest over their lifetimes and would be very unlikely to build up enough in their individual accounts to equal the guaranteed benefits that the current system, including the spousal benefits based on their husbands’ earnings records, provides.  The inflation adjustment feature of social security is also incredibly important to women since they live longer than men, and the life insurance and disability insurance aspects of social security also help women disproportionately.  No privatization plan that I have seen protects all these features vital to women’s economic security.

Bill Dudley
Goldman Sachs
Daily Financial Market Comment, “The Budget Numbers Don’t Add Up,” 10/19/04

In addition, President Bush’s proposal to partially privatize social security would also drive up the budgetary imbalance over the next several decades.  The problem is that the monies that
would flow into the privatized accounts would be unavailable as revenue for the federal budget.  Estimates of this cost range from $1 trillion to $2 trillion over the next ten years, depending on the precise scope of the plan. 

Rep. Robert T. Matsui
Senior Democrat, Social Security Subcommittee, House Committee on Ways and Means, (202)225-7163

Diverting Social Security revenues into private accounts will drain trillions of dollars from the Social Security Trust Funds and force significant cuts in guaranteed benefits. 
President Bush campaigned upon this platform in 2000, and he continues to declare his support for this kind of privatization in the current campaign.  He may not use the word “privatize” in public, but there can be no doubt that is his goal.
Ultimately, it does not matter what word the President uses to define his plans for Social Security.  The numbers continue to bear out the fact that it is mathematically impossible to divert one-fifth of Social Security contributions into private accounts without dramatically cutting benefits.

Prof. Franco Modigliani (Nobel Prize winner in Economics, 1985, deceased)
and Dr. Arun Muralidhar, (646)591-6991
Adapted from Rethinking Pension Reform, Cambridge University Press, 2004. Pages 58-59.

We maintain that “privatization” as the primary source of retirement income has at least four major shortcomings:
(1) It would eliminate the existing defined and progressive benefit structure. . . It would replace it with a “defined contribution” structure – where participants do not get a predictable, guaranteed pension, but a “lottery ticket” (the uncertain, erratic performance of one’s personal portfolio).
(2) To require or even encourage people to gamble their retirement nest egg is irreconcilable with the spirit of the current defined benefits system, which aims at ensuring a minimum retirement income.  Indeed, on close reflection, one must conclude that privatization ‘privatizes’ only the one thing that should be shared, risk!
(3)  Individual portfolios will tend to increase the gap between the rich and the poor in two ways:  a) the rich will be in a position to gain more from the option as they have more investment experience. b) In the end, the poor will receive smaller pensions or will have to contribute more, while the pensions of the rich will be enhanced.
(4) Although some of the privatization advocates have suggested amendments that would insure some minimum outcome, these remedies are highly unsatisfactory, for they are disadvantageous to the participants.

Merton C. Bernstein
Coles Professor of Law, Emeritus, Washington University, (508)896-8383
Adapted from an outline presentation “Privatize Social Security in the United States?” by Merton C. Bernstein.

Privatization is high cost, high risk, and is unworkable in the United States. To have any possibility of political viability, any such proposal must promise full Social Security benefits to the retired and those nearing retirement. That promise, to finance both an enormous portion of the old and simultaneously finance the new system would cost $3.75 trillion – soothingly called “transition costs.”
 
Social Security privatization calls for diverting a portion of payroll tax – usually pegged at 2% – into private, individual accounts. Unlike Social Security, these private accounts would not provide more ample wage replacement for the lower and modestly paid than for the more highly paid. This undercuts the claims that privatization seeks “wealth” for lower paid workers.  Also private accounts would not provide assured benefits to family members as the current Social Security system does.  And diverting a portion of payroll taxes for private accounts would imperil – and probably doom – the disability insurance component of Social Security.

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