- The Washington Times - Thursday, August 2, 2001

The political and ideological opponents of President Bush's not yet completed proposal to offer workers a personal investment account option for Social Security have already begun their thundering critiques. These critiques clearly reveal the basic political strategy behind their opposition. Quite simply, that strategy is to just play dumb.
They are going to play dumb first and foremost about the intractable problems facing Social Security. They are going to play dumb about key components of personal account reform that are already public and designed to answer valid concerns. They are going to play dumb about the extensive studies that show how a well-designed reform would enormously benefit working people, particularly lower income workers and minorities.
They are going to play dumb about how the increasing numbers of other countries around the world that have adopted a personal account option for their workers have addressed any valid concern. And, of course, they just can't figure out any possible way of financing the transition without hurting workers, or seniors, or some other large group of Americans.
Exhibit A in the just-play-dumb strategy is the memo recently circulated by Rep. Robert Matsui on behalf of non-progressive Democrats, responding to a memo on Social Security reform circulated among Republicans by House Majority Leader Dick Armey.
The Matsui memo states that a personal account option for Social Security would "threaten survivors and disability benefits." It says that Social Security benefits "for the families of disabled or deceased workers … are among those that are most threatened by substituting private accounts for current Social Security."
But Mr. Bush has said from the very beginning that the personal accounts would not involve or affect disability or survivors benefits. Those benefits would continue to be provided by Social Security as today, with no change due to the personal account reform. Those supporting a personal account option have also consistently accounted for the continuation of these benefits, either by continuing to provide them through Social Security as today or providing them through private insurance. Every foreign country that has moved to personal accounts has done the same as well. The issue is just not honestly on the table.
Mr. Matsui also touts the $1 trillion in specially issued government bonds held by the Social Security trust funds, and states that they "will continue to grow in value to $6.5 trillion (in current dollars) by 2024." He says, "Those assets were purchased with workers' Social Security taxes and, like every other Treasury bond, are backed by the full faith and credit of the United States government. If they are not real, then are the bonds held by private investors, banks, pension funds and insurance companies not real as well?"
But the problem is not that the bonds in the Social Security trust funds will not be paid. The problem is that it is going to involve a lot of pain and suffering to pay them. Indeed, that pain and suffering may induce policy-makers to cut Social Security benefits to ease the pain.
By Mr. Matsui's own account, the federal government will have to redeem $6.4 trillion in Social Security trust fund bonds from 2024 to 2038. Exactly where is the money going to come from to redeem those bonds? That is a lot of economic pain and suffering over a 14-year period. On the same analysis the critics use to evaluate personal accounts, until they specify how that $6.4 trillion in bonds is going to be financed, we can only assume that they plan $6.4 trillion in Social Security benefit cuts during that time.
Mr. Matsui also denies that workers with personal accounts will have any money to leave to their heirs because they will have to use all their personal account funds to purchase annuities that will pay monthly benefits for the rest of their lives. But precisely because the personal accounts will earn much greater returns and benefits than Social Security, workers can buy annuities from their accounts matching what Social Security would pay and still leave large sums left over.
Mr. Matsui also thoroughly misunderstands how personal accounts would affect the long-term financing of Social Security. Mr. Matsui says, "plans to allow people to direct part of their payroll taxes into private investments make Social Security's financing problem worse, not better." That is supposedly because if "funds are diverted away from Social Security to invest in personal accounts, there will be less money to pay future benefits, increasing the long term Social Security financing gap."
But workers who exercise the personal account option will forego a portion of their future Social Security benefits equivalent to the proportion of Social Security taxes they shift into their personal accounts over their careers. For example, a worker who invests 30 percent of his total Social Security taxes into a personal account each year for his entire career would forego 30 percent of his Social Security retirement benefits in return for the much higher personal account benefits, reducing Social Security expenditures. If all workers did this, the future benefit obligations of Social Security and its long-term deficit would be reduced by 30 percent overall.
Mr. Matsui completely fails to account for this. Talk about playing dumb.
Why do Mr. Matsui and others insist on opposing such a highly desirable, beneficial reform for working people? The real problem is that the personal account option would shift power and resources away from the centralized government in Washington, and the elitists who see themselves as controlling that government, and back to the workers themselves. That is truly what the opponents of personal accounts for Social Security just cannot accept.

Peter Ferrara is an associate professor of law at the George Mason University School of Law and a senior policy adviser to Americans for Tax Reform on Social Security.

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