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Bush on Social Security Reform From President Bush's campaign website, the text of his Social Security platformBack The text from Mr. Bush's campaign website is displayed below, along with notes that flag many of the issues to consider in the Bush platform. His proposal turns out to be misleading in three important ways. 1. THE NEST EGG CLAIM. One theme recurs several times. Personal Retirement Accounts, it is claimed, will create nest eggs that can be used both for retirement and to build assets for one's heirs. This is a "both-and" claim. A nest egg BOTH for retirement AND for one's heirs. This is misleading. 1) Personal Retirement Accounts will at best provide only a fifth to a quarter as much as Social Security's direct benefits. Anything more, and PRA's take over an unacceptably large share of the stock market. 2) If I retire with a PRA accumulated from a lifetime of work, will my PRA be big enough that there'll also be a "nest egg" left over for my heirs? Not really. Once I retire, it's almost certain I'll buy an annuity with my PRA. If I don't live very long after retirement, my heirs might be able to participate in the annuity for awhile, but it's misleading to pitch the remains of a modest annuity as a nest egg. 3) If I die before retiring, my relatives will no doubt inherit my PRA assets. But how? In cash? As a "Nest Egg"? The more likely answer is that my PRA assets will be split up and transferred into their Personal Retirement Accounts. Would you think of this as a "Nest Egg"? There's a more honest way to describe the situation that Mr. Bush's website uses. If you live for a long time, your PRA will serve as a modest nest egg for your retirement. If you die early, your PRA will most likely be split into shares and deposited in the PRA's of your heirs, modestly fattening their retirement nest eggs. PRA's will NOT be big enough to finance your retirement AND serve as Nest Eggs for your heirs. Bush's proposal repeatedly implies that they will, and it is wrong every time. 2. THE CONTROL AND LOW RISK CLAIM. The Bush proposal is misleading in another respect as well. On the one hand, it seems to promise autonomy and control. The tone: "Your payroll deposits will create assets that you will control." On the other hand, the Bush proposal downplays the risk that you could lose your PRA savings. Which is it? If the accounts are yours to control, you're free to invest them as you like, and you're at risk of losing your savings. If Social Security's PRA rules are tight enough to protect your PRA savings, then you won't really have "control." The Bush proposal implies "control" AND "safety." The reality is control OR safety. Again, the tone of the Bush proposal is misleading. 3. THE FUTURE BENEFITS ARE PROTECTED CLAIM. Another misleading aspect of the Bush proposal is the assertion that future benefits will be at least as high, after inflation, as benefits now paid to seniors. This claim relies in part on analyses that were performed using unsupportably high estimates for future stock market returns. Mr. Bush's Social Security reform commission regularly assumed 6.5% real return from stock investments. This is a fantasy forecast, not a prudent estimate of what's likely. (See "Are Seven Percent Returns Realistic?" to understand the logic one must use in estimating future returns.) Our simulator shows us the outcome that's more likely. We followed four simple rules. No federal subsidies for Social Security. Finance PRA's out of the current payroll tax. Achieve lasting solvency (i.e. assets have to be stable in the outyears, not on the verge of drying up.) Start with the Slow Growth scenario that forms the basis for all the Actuaries' projections on Social Security's future. With these rules in place, our simulation shows us what must happen. It turns out that Social Security's average monthly benefits must undergo a modest decline for about three decades before an upturn will be possible. Some of the decline will be made up by PRA's, but not all that quickly. (It takes four decades for PRA's to ripen to their full potential.) Mr. Bush's website claims that future benefits will not suffer as a result of PRA's. In point of fact, Social Security cannot achieve lasting solvency in a Bush PRA scenario without a modest reduction in the program's base monthly benefits. A realistic estimate of what PRA's can produce takes away most of the glitter. There are useful ways to design PRA's, but the prudent logic that's needed is not to be found on Mr. Bush's campaign website. |
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Bush's
campaign website, as of August 1, 2004, on Social Security . . . Strengthening Social Security Appointed
the bipartisan Commission to Strengthen Social Security In May,
2001, the President appointed a bipartisan Commission to Strengthen Social
Security, co-chaired by the late Senator Daniel Patrick Moynihan and by
Richard Parsons. The sixteen-member Commission, composed of eight Republicans
and eight Democrats, issued a unanimous report of recommendations to strengthen
Social Security. These recommendations, if implemented, would establish
voluntary personal accounts for workers, and permanently fix Social Security
without changing benefits for current seniors or raising payroll taxes.
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Issues to Examine
1) No one who thought personal accounts may be a flawed strategy was allowed onto the Bush Commission. |
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No Changes
in Benefits for Those Now in Retirement, or Near Retirement - President
Bush's first Social Security reform principle is that there be no changes
in Social Security benefits for today's retirees or near-retirees. President
Bush's Administration has kept the benefit promises made to today's seniors.
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2) The Bush Commission did propose long-range reductions in retiree benefit formulas, as a key to avoiding insolvency. |
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Leadership
on Fixing Social Security For Our Children and Grandchildren The
President has advocated the establishment of voluntary personal accounts
within Social Security. These personal accounts would provide ownership,
choice, and the opportunity for workers to build a nest egg for their retirement
and an inheritance for their families. |
3) Nest egg for retirement AND nest egg for inheritance? More likely, "retirement nest egg OR inheritance nest egg." |
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Members of Congress have responded to the President's call for action. Since
the report of the President's Commission, at least six comprehensive proposals
have been introduced in Congress that would establish personal accounts
and permanently fix Social Security. Many of these proposals incorporate
specific recommendations of the President's Commission. Each of these proposals
would allow seniors to leave the balance in these accounts to widows, children,
and other heirs. |
4) Inheritable PRA's weaken retirement benefits if the inheritances are spent rather than reinvested in the heirs' PRA's. |
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Why is it necessary to take action to fix Social Security? Fifty years ago, there were 16 workers to support every person on Social Security. Today there are only 3.3 workers to support every beneficiary. By the time our youngest workers, those just entering the workforce today, turn 65, there will be only 2 workers supporting each person on Social Security. |
5) This is indeed a real issue. The vast expansion of America's retiree pool creates a huge financial challenge. At the same time, Social Security's cautious GDP growth forecast may overstate the problem's severity.. |
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Benefits for today's seniors are secure. The current system, however, will
not be able to afford to pay promised benefits for our children and grandchildren
without enormous tax increases. |
6) Benefits for today's seniors are NOT secure once Social Security turns cash negative at the end of the next decade. |
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Americans who retire in 2035 -- our children and grandchildren -- should
not have to depend on a system that was designed in 1935. |
7) The major redesign that guides today's Social Security system was adopted in 1983. Perhaps a successful redesign is exactly what's needed? |
| What
is President Bush's process for dealing with Social Security? There are a variety of good plans that have been proposed to fix Social Security and to establish personal accounts. President Bush will work with Congress to fix Social Security permanently. What is President Bush's solution? President Bush opposes changes in benefits for those now in or near retirement. President Bush opposes increasing the payroll tax. We cannot tax our way to reform. |
8) Not all personal account plans are good. Not all good plans for fixing Social Security require personal accounts. |
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President Bush favors personal accounts for today's workers. These personal
accounts would provide ownership, choice, and the opportunity for all workers
to build a nest egg to help with their retirement and to pass on to their
heirs. There have been a variety of good plans put forward to fix Social Security and to establish personal accounts. Each of these plans uses different elements to fix Social Security permanently. The President will work with Congress to determine the best elements of the many proposals that have been put forward. |
3-again) More accurate to say "help with retirement, OR pass along to their heirs." Bush rhetoric pretends PRA owners will be able to have their cake and eat it too. |
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Myth: Establishing personal accounts would create new costs in the Social Security system, and weaken the finances of Social Security and of the federal government. Fact: Establishing personal accounts does not increase the total cost of paying for Social Security. The costs of Social Security are already there. If we did not reform Social Security, the Social Security Trustees tell us, it would cost an estimated additional $10 trillion to sustain the program going forward. Every plan with personal accounts scored by the Social Security Administration (SSA), according to SSA actuarial estimates, would cost less to permanently fix the Social Security system than would be the case under the status quo. We need to confront this problem now. Social Security's problems will mean fiscal strains for the federal government, if not now, then later. Either we accept some costs today to fix Social Security permanently, or we do nothing and leave much bigger costs to our children and grandchildren. |
9) Calling it a "FACT" that a personal account solution will be cheaper depends on a massive GUESS about future stock market returns. If the guess is wrong, there's no guarantee. So it's not really a "Fact." |
| Myth:
Establishing personal accounts would require reductions in benefits.
Fact: For those now in or near retirement, the President has promised that there will be no changes in benefits. Today's young workers, the retirees of the future, can expect to receive benefits with a value at least as high as those paid to today's seniors, even after adjusting for inflation, whether or not they choose to establish a personal account. For those young workers who choose a personal account, total benefits are expected to be higher than seniors receive today, after adjusting for inflation. |
10) If real GDP grows as slowly as Social Security's actuaries forecast, average SS + PRA benefits could well be flat for the next three or four decades. The best assurance of rising benefits is faster GDP growth. |
| Myth:
Establishing personal accounts would be privatizing the Social Security
system. Fact: President Bush wants to give personal control and ownership to individual participants in Social Security. The government-administered Social Security system would continue to be there, and would not be privatized. Individual Americans -- not the federal government -- would be given the power to decide how part of their payroll taxes would be invested, and individuals would have the opportunity to benefit from the gains of long-term investing. |
11) The more power individuals have to decide how their accounts are invested, the greater the overall risk. Some personal accounts could sustain significant losses. |
| Myth:
Establishing personal accounts would undermine the Social Security "safety
net" and hurt low-income participants. Fact: Most personal account proposals introduced in Congress are more progressive than the current system. Lower-income beneficiaries would expect to receive a higher percentage increase than would high-income beneficiaries, relative to the benefits the existing system can pay over the long term. A recent report from the General Accounting Office found that the proposals of the President's bipartisan Commission would result in a more progressive distribution of Social Security benefits, meaning that low-income Americans would gain from personal accounts. |
12) The Bush Commission claims greater benefits for low income participants by having them invest a higher percentage of payroll in personal accounts. In any realistic PRA scenario, there's little guarantee that this will lead to greater benefits. |
| Myth:
Individuals with personal accounts could lose all of their Social Security
money and not have anything left for retirement. Fact: Individuals would not be permitted to lose all of their retirement benefits under any of the personal account plans that have been evaluated by the Social Security Administration. In each of these plans, individuals with personal accounts would still have access to a traditional Social Security benefit. Under some of these proposals, the safety net against poverty for low-income retirees would be strengthened through enhancements of the basic Social Security benefit. Kerry has flip-flopped on whether Social Security needs to be strengthened -- He now says little change is needed, but just last year and in the 1990s he said Congress should consider dramatic changes, such as raising the retirement age, means-testing benefits and slowing COLA increases.
In 2003: [Kerry] told the audience here the country should consider raising Social Security taxes on incomes above $86,000 or capping the retirement benefits paid to wealthy Americans. (David Yepsen, "Still Time For Kerry - But Hold The Ketchup," The Des Moines Register, 8/14/03) Now in 2004: RUSSERT: "Back in 1995, you said we have to be bold. And it might be unpopular, but we should consider raising the retirement age and means testing. Do you stand by those statements?" KERRY: "No, I rejected that. We looked at that and we found that we don't have to do it." (Sen. John Kerry, NBC's "Meet The Press" with Tim Russert, 4/18/04) Kerry lacks the necessary leadership to strengthen Social Security -- He lacks the vision, leadership and understanding of the issues that is necessary to strengthen Social Security.
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13) The "Myth" statement raises two issues. a) Will a person's retirement depend entirely on personal accounts? No. Most of the retirement funding load will still be carried by Social Security. b) Can a person lose all their PRA savings before retirement? If one reads between the lines, the answer appears to be "maybe." |
| Kerry
doesn't have a vision to fix inequities in the system -- His opposition
to allowing voluntary, personal retirement accounts in Social Security means
denying the opportunity for all workers to build a nest-egg with their own
savings that they own. It means denying the opportunity for low-income Americans
-- who often die at an early age and cannot recoup their Social Security
taxes -- the ability to build a nest egg and pass it on to their families.
Kerry doesn't have a plan to avoid steep tax increases, benefit cuts or both -- His denial of the reality of the Baby Boomer generation retiring will make Social Security's financial problems even worse. Kerry only seems to understand tax increases He has voted eight times for higher taxes on Social Security benefits -- the money didn't even go towards Social Security. He voted five times for Clinton's proposal in 1993 to increase the income tax on certain Social Security benefits from 50% of the benefits to 85% of the benefits. He voted against repealing the tax increase in 1996, 2000 and 2003. Kerry just wants new government spending -- For example, he has proposed raising taxes on individuals and small businesses earning more than $200,000 a year, but he just wants to spend the money on his new initiatives. He doesn't propose to use any of his tax increases for deficit reduction or Social Security. |
3 - again) If someone dies before retirement, and the nest egg is passed on to his family, will it automatically go into the heirs' Personal Retirement Accounts? Bush never says. |
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Revision Date 2006-04-13 A non-profit successor to the Collaborative Democracy Project |
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