- The Washington Times - Thursday, January 6, 2000

Ask the National Council of La Raza if Hispanics would be better off financially if they could put part of their

Social Security taxes into their own investment retirement accounts, and they will tell you it's not "in the best interests of our members."

In a classic example of social paternalism at its worst, officials at this Hispanic public policy grass-roots organization told me that lower-income Hispanics would not understand how to invest their money wisely and that La Raza opposes even partial privatization of the retirement program.

These Hispanic workers, most of whom pay much more in Social Security taxes than they do in income taxes, "do not understand the complexity of the Social Security system. They don't understand what' fully at stake in privatizing the system," says Eric Rodriguez, a senior policy analyst at La Raza.

"Privatization, even partial privatization, is not right now in the best interests of our members," he said.

Mr. Rodriguez readily admits that he invests in a mutual growth fund the kind of fund that would yield Hispanic workers a much higher return on their money than Social Security does now. Ask him how his fund is doing and he says "it's been doing great."

He had no problem choosing a low risk, high return mutual fund from the more than 6,000 funds that are easily available through banks, insurance companies, brokerage firms and from employers. And his fund has probably given him a very high double-digit return on his investments.

Yet he says La Raza believes it would not be right to make that choice more widely available to hard-working, low to middle income Hispanics.

La Raza's position sounds very much like the position that Bill Clinton took last year when he came out against giving some of the budget surplus back to the taxpayers who had earned the money in the first place. "We could give it back to you" but you may not spend it in the right way, he said shortly after his 1999 State of the Union address.

Both positions prevent lower income Americans from achieving a better, more financially secure life for themselves and their children. "By taxing away one generation's opportunity to help the next generation start earning at a higher level, the Social Security system acts as a drag on future generations," a Heritage Foundation analysis correctly observes.

At the heart of this issue, which La Raza does not address, is the very poor return lower-income workers receive from the payroll taxes they will pay over their working life. "Most workers will only receive the equivalent of a 1.2 percent rate of return on their Social Security taxes," a new Heritage study states.

And Hispanics, among other lower-income minorities, also face dismal return under Social Security, Heritage analysts say.

"For example, a Hispanic single mother age 40 who made about $25,700 last year can expect a return rate of only 2.8 percent," Heritage studies calculate. If we let this mother put her payroll taxes into an investment account made up of safe U.S. Treasury bonds, her return would rise to 3.5 percent. "That's enough for her to match her Social Security benefits and have money left over to pass on to her children," says Heritage economist Bill Beach.

Put these same payroll taxes into a balanced fund that also invests in blue chip, large, safe corporate stocks like IBM, General Electric, Microsoft or Intel, and the growth of such investments will compound significantly over one's working life.

For example, a single, 25-year-old working mother who began putting her payroll taxes into a personal investment account this year would be able to retire in 2040 with a nest egg of $1.2 million. A high school graduate who began work at age 18 would be able to retire in 2047 on a fund in excess of $2 million.

But the people over at La Raza argue that lower-income Hispanics and other minorities do not possess the education and knowledge needed to handle such investments.

Yet these same Americans know how to open up checking accounts, buy certificates of deposit from banks or insurance policies or savings bonds. Many of them buy homes.

What we are talking about here are individual retirement account-type investment plans that many employers offer their workers, or plans that can be purchased from banks, insurance companies or other financial institutions. Hispanics are just as capable to making these decisions as anyone else and, in fact, the mutual fund industry has developed substantial data to show that people in these very same lower-income groups have already begun to invest in such plans in significant numbers.

The big question now is when are we going to let all Americans put at least taxes into their own retirement plans to reap the kind of investment returns that better paid people like Eric Rodriguez take for granted?

This is an issue that needs to be fully debated in the 2000 presidential election, but outside of Steve Forbes, no one is talking about it. Inexplicably, Texas Gov. George W. Bush, who strongly supports personal retirement accounts, does not raise the issue in his campaign speeches.

Certainly, now is the time for Mr. Bush and the others to begin turning up the volume on one of the most profound economic and social reforms that this nation can make in the 21st century.

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