- The Washington Times - Friday, September 22, 2000

Big government reactionaries are having a very difficult time opposing George W. Bush's personal account option for Social Security. By overwhelming majorities, the public recognizes that the personal account investments would produce far better returns and benefits than Social Security.

Al Gore inadvertently drove this point home when he advanced a proposal for add-on accounts on top of Social Security. Mr. Gore's campaign brags that with workers investing just $2,000 per year in these accounts, couples would easily accumulate $400,000 by retirement, which, they say, would pay $50,000 per year in benefits. Mr. Gore and his people fail to notice that this would be a far better deal than Social Security.

So why must workers and their employers continue to pay all of their payroll taxes, one-eighth of their wages, into Social Security for a miserable, negligible return? And how can we ask them to pay even more on top of Social Security without fixing the bad deal they are getting for what they are already paying?

The attempt to paint personal accounts as too risky has also failed miserably. Standard market risks pale in comparison to the certainty of poor returns from Social Security, and the likelihood, not just risk, that Social Security's long-term financing crisis means the program will become an even worse deal for workers.

Particularly troubling for liberal naysayers is the powerful appeal of personal accounts to their core constituencies. Blacks, Hispanics, blue collar workers, and other low- and moderate-income earners recognize that a true personal account option to Social Security is the only way they can join the capital market boom now so benefiting the top half of income earners.

These workers most need the benefits and other advantages such personal accounts would produce. That is why polls show incredible support of two-thirds to three-fourths of those in these groups for a personal account option.

Unable to win on the merits, personal account opponents are now resorting to outright smear tactics and falsehoods to try to kill the idea. This is evidenced in a report released by the Century Foundation by four long-time opponents of personal accounts, Henry Aaron, Alan Blinder, Alicia Munnell and Peter Orszag.

In the report, the authors falsely claim Mr. Bush's personal account option would require cuts in Social Security benefits of 30 percent to 50 percent for workers under age 50 today. Even with the benefits from the personal accounts, they argue, these workers would end up with about 20 percent less in benefits overall as compared to the current Social Security system.

The truth is quite the opposite. Workers with personal accounts would enjoy much higher benefits overall than Social Security promises.

The personal accounts would replace a portion of Social Security benefits equivalent to the proportion of Social Security taxes shifted into the personal accounts over the worker's career. Since the returns on the personal account investments are so much higher than Social Security, the personal account benefits would be much higher than the Social Security benefits they replace, leaving workers with much higher benefits overall.

Indeed, with an option to shift just 2 percentage points of the Social Security tax into personal accounts, young average income workers today would receive 40 percent more benefits overall than Social Security promises, at even just half the average return earned in the stock market over the last 75 years.

Mr. Aaron and company calculate their alleged benefit cuts by simply assuming that Mr. Bush would cover current long-term Social Security deficits entirely by cutting Social Security benefits. But Mr. Bush has never said such a thing and it is not part of his reform plan. Moreover, such cuts would not in any event be produced by the personal accounts. Quite to the contrary, such cuts are threatened by the current long-term Social Security deficits if personal accounts are not adopted.

Mr. Bush would finance the personal accounts to start from the Social Security surpluses currently projected for the next 15 years or so. He would back up Social Security benefits during the transition to the accounts with the trillions of dollars in general revenues the federal government will receive each year in the future. Indeed, Mr. Gore proposes to solve the entire Social Security financing problem precisely by using general revenues for Social Security on an indefinite basis.

Moreover, Harvard Professor Martin Feldstein, chairman of the National Bureau of Economic Research, has shown the transition to a personal account option could be covered with some shorter-term borrowing that would be paid off in later years as the personal accounts grew. In addition, as benefit obligations were shifted to the personal accounts, long-term Social Security deficits would be reduced, or even potentially eliminated altogether.

Regrettably, Henry Aaron and his colleagues have offered nothing of value in the important debate over the future of Social Security. Erroneous charges of future benefit cuts, whether simply misguided or designed to mobilize certain constituencies, fail to illuminate the true issues at stake. They do nothing to refute the clear superiority of personal accounts invested in real assets under the direct, personal, ownership and control of working people.



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

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