The Social Security Debate

What Democrats aren't telling you

by Heidi Parent
03/16/05

About twenty years ago, when Illinois changed the criminal statute for rape to criminal sexual assault, I remember reading a newspaper story that began, "There is no longer rape in Illinois." It was only when the reader continued with the story that he found out the truth behind the deceptive opening sentence.

This story reminds me of the Democrats' claim that Social Security isn't facing a crisis. (After all, to agree would be to admit that something needed to be done.) But when you consider that fifty years ago there were sixteen workers supporting one retiree and soon that number will reach two for every one and continue to dwindle; use whatever adjective you'd like Democrats, but it sure sounds like a really, really, really bad situation to me.

To the President too. As such, he's put Social Security reform at the top of his agenda.

Now he has yet to make an official proposal, but he talks a lot about personal accounts. These accounts can take many forms, but the one discussed most often would allow a younger worker to divert a small portion (2 to 4 percent) of his Social Security taxes into a personal investment account. The earnings made on the personal account would then be deducted from what he would normally receive from Social Security, ultimately off setting what he is owed in the future and easing the tax burden on future workers. But there are two other attractive benefits to personal accounts. First, the money from these accounts is invested in the private economy (not in government, as is the case today), which ultimately ends up growing the economy and creating additional wealth. And secondly, the money in the personal account belongs to the worker - not Washington - and he can bequeath that money to his heirs or as he sees fit, something not allowed under the current program.

But Democrats don't want to hear about the benefits. In fact, the very idea of personal accounts has them on the verge of losing their minds. To that end, they are pulling out all the stops to keep these accounts from becoming reality, even if it means distorting the truth or not telling the whole story.

For example, at a recent press conference, Senator Chuck Schumer (D-NY) said, "The President's been making it seem to people that privatization makes you money. It loses you money. Because even though you get some from the private account, you lose more in your regular account." No kidding! That's the idea, Chuck. A worker's Social Security benefits are off set by the money he makes in his personal account. But the key is that the money in the personal account is his. He controls it, not government.

But why am I not surprised that Chuck didn't make this clear?

You've probably also heard Chuck and his cohorts use phrases like "risky scheme" and "Let's not chose Wall Street over Main Street" and conjuring up images of crashing markets in their efforts to scare away support. This is ridiculous on many levels.

First of all, what's so bad about investing in the stock market? In fact, if you have a pension fund or a 401k, chances are you're already investing in the stock market. Moreover, the vast majority of Congressmen themselves invest in the market. House Minority Leader Nancy Pelosi (D-CA) invests approximately $300,000 in Amazon.com alone. Senator Jon Corzine (D-NJ) became a millionaire four hundred times over by investing in the market. So it's pretty hypocritical for these millionaires to try to save us from ourselves by talking us out of investing.

Secondly, selecting a period in the market that contained a downturn and passing it off as indicative of usual market performance is misleading to say the least. While there are up swings and down turns in any market, one needs to keep in mind that Social Security personal investment is for the long run. Which means investors will be able to absorb a down turn because it will be off set by up swings. But the bottom line is, over the last seventy years the average real rate of return on the stock market has been almost 8%. Certainly better that the 1.9% you get with Social Security.

By focusing only on the stock market, Democrats are implying that the market is the only place personal accounts may be invested. When the truth is, personal accounts will allow for various investment options, which means the stock market will only be one of a number of places in which you can invest.

But the most important thing they are not telling you is that personal accounts will be optional. That's right. You don't have to participate. You can stay completely in the current system instead, should you so chose.

Which raises a larger question central to understanding the Democrats' motivation: If personal accounts will be optional, shouldn't taxpayers be the ones decide whether or not they want to participate? Moreover, if personal accounts are as bad as Democrats claim, who'd want in? You would think Democrats would have confidence in the strength of their argument and allow the President to have his way, knowing full well that the American people will laugh and say no way once they read the fine print. But the funny thing is, Democrats won't even allow you that choice. Instead they want to force you to stay in the current system.

Wonder what their motivation could be?

We'll answer that question in the next issue.