- The Washington Times - Wednesday, June 21, 2000

Recognizing the broad popularity of the personal account option to Social Security proposed by George Bush, Al Gore yesterday proposed a sham version of personal investment accounts. In contrast to the Bush proposal, what Mr. Gore has proposed is not a solution to the problems of Social Security, but a new, big spending, government entitlement program. As a result, while the Bush accounts would greatly aid working people, the Gore accounts would further burden them.

The Gore accounts are basically a rehash of the USA accounts Mr. Clinton proposed last year. The government would match worker contributions to the accounts up to a maximum of $2,000 in total contributions each year. The government contributions would be phased out for workers with higher incomes. These accounts would be on top of Social Security and have no relation to it.

There are two fundamental problems with these Gore accounts. First, workers would have to come up with more of their own money to pay into the accounts. Workers could not use a portion of the Social Security taxes they and their employers are already paying, as in the Bush plan.

The government contributions to the accounts would involve huge amounts of new federal spending, in addition to the gargantuan total the government is already spending on Social Security. Indeed, Mr. Gore himself estimates his accounts would involve $200 billion in increased federal spending over 10 years. More official estimates of the cost of the Clinton USA accounts suggest the Gore accounts will cost more than double his estimate. All this government spending comes from workers as well, through taxes.

Secondly, the Gore accounts would do nothing to solve the problems of Social Security. Even if Social Security somehow paid all of its promised benefits, most young workers today would receive a very poor return on taxes paid into the system. For most, the real return after inflation would be around 1 percent or less. For many, it would be zero or even negative.

With the Gore accounts, workers and their employers would still be paying 12.4 percent of wages for this miserable deal. How can Gore ask workers to pay more when they are receiving such a bad deal for what they are already paying?

Nor would the Gore accounts do anything to solve the long-term financial problems of Social Security. The accounts produce no change in Social Security revenues or expenditures, so they would not close in any way the huge long-term deficits shown by the government's own projections. Social Security's total unfunded liability of close to $10 trillion would not be changed by one penny.

The Bush plan, by contrast, would allow workers to get a better deal on the Social Security taxes they are already paying by allowing them to invest a portion of those taxes in the private capital markets. These markets provide much better returns than Social Security promises (but cannot pay, again under the government's own projections). Even at about half the average return earned in the stock market over the last 75 years, average income workers investing all their Social Security taxes in personal accounts would receive about threefold the benefits promised by Social Security. Even low-income workers who receive special subsidies through Social Security would receive more than twice what Social Security promises them.

Moreover, with workers relying on personal accounts in place of part of their Social Security benefits in the future, the Bush plan would reduce the long-term financial burden on Social Security. If the accounts were expanded and utilized broadly enough, the entire long-term financial problems of Social Security could be eliminated in this way, without raising taxes or cutting Social Security benefits.

Instead of liberating workers by creating financial independence, the Gore plan is just another scheme to increase the dependence of workers on government. The idea is to use your own money to bribe you into the left's political machine, through the government subsidies provided to USA accounts.

Don't believe for a minute the American public will fall for this. The country is not in the mood for yet another big spending entitlement program that evades the deep problems of the enormous entitlement programs we already have.

What the American people want is freedom and prosperity, not dependence on a bad deal.



Peter Ferrara is associate professor at the George Mason University School of Law and a senior fellow at the Cato Institute.

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