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Guest Opinion
Social Security Investment Accounts Would Be
Dangerous For Seniors
By David J. Roberts,
Associate Professor of Accountancy, DePaul University
Nov. 13, 2004 - President Bush has indicated that,
in his second term, the creation of personal accounts under Social
Security will be a top priority. Proponents of so-called personal
accounts (to use the more politically marketable terminology for what is
really partial privatization) typically argue that such accounts are
needed to save Social Security. But partial privatization would not
likely "save" Social Security, and would probably cause serious harm to
seniors and long-time participants in the current system.
Most of the new money going into Social Security
goes right back out to pay current benefits. The excess presently goes
into the trust funds, and could instead conceivably be invested in
private accounts. But a big part of the problem is that this excess
will be going away. All the new money and more will ultimately be
needed just to pay promised benefits under the current system. Without
privatization, government will already face a major cash-flow problem
when it is called upon to redeem the government bonds held by the trust
funds.
Diverting new money into private accounts might
benefit new younger participants upon their distant retirement, but this
would probably come by shortchanging those who have paid into the
current system for their entire working lives. Simply put, if the
problem is that there will not be enough money to pay already-promised
benefits at a particular date using all of the tax revenue, how would it
help to use even less?
Some privatizers acknowledge that there would be a
huge transition cost, saying that the transition could be funded from
government's general revenues. But the total shortfall will ultimately
be trillions of dollars. If privatizers have some secret plan to come
up with this money, they should tell us. Thus far, they have typically
avoided addressing this critical question.
With President Bush's tax cuts, the government
budget is showing record dollar amounts of red ink. And the national
debt, representing the accumulation of over 200 years of government
borrowing, is up an almost unbelievable 29% under Bush. So where will
the money come from to fund the transition?
Of course those with private accounts could
generate higher returns on those accounts than Social Security
generates. Most of the Social Security tax revenues are not invested;
they simply go right back out to pay old-age, survivor and disability
benefits. There is relatively little investment upon which to have any
return. So how would privatizers pay all the promised benefits and come
up with the new money to invest?
Note that when privatizers promise a higher
"return", they frequently ignore the tremendous value of the present
survivor and disability coverage that has helped so many families
through tough times. If privatizers plan to end these important aspects
of the social safety net, they should say so.
Making matters worse, privatizers usually promise
an expensive new benefit--the ability to leave the account balance to
heirs upon death. If government can't afford the present set of
benefits, how can it afford this new inheritance benefit?
Current participants should be particularly
concerned that good returns on small private accounts would lead younger
workers to demand full privatization. Greater privatization would
further drain the new tax revenues needed to pay benefits promised under
the present system.
President Bush and most Republicans favor some
degree of privatization. Some believe that it is not the role of
government to provide a safety net; people should be on their own to
sink or swim. And it is easy to see how the financial services
industry--major Bush campaign contributors--would benefit from getting
its hands on those private accounts. But it is hard to imagine how
privatization would help older workers and seniors, and it is easy to
see the potential for tremendous harm.
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