The Bush administration struck back last week against Democratic critics of its plan to let workers invest some of their Social Security payroll taxes in stocks and bonds, denying that it would lead to benefits cuts or financial losses.
In a letter to Sen. Jon Corzine, New Jersey Democrat, who is leading the attacks on President Bush’s Social Security reform plan, the White House said Mr. Corzine’s critique contained “a number of factual errors and misunderstandings.”
Mr. Corzine, in several, hard-hitting statements and speeches, has accused the administration and the Republicans of planning to take “trillions of dollars from the trust fund to finance private accounts and force deep cuts in guaranteed benefits.”
In its first detailed response to mounting charges by the Democrats, the administration said no one’s benefits would be cut and that Mr. Bush’s proposals would improve Social Security’s future solvency.
The response to Mr. Corzine’s charges was in a letter signed by six members of the president’s commission on social security reform, which proposed three ways to implement Mr. Bush’s reforms.
Mr. Corzine charged that worker contributions to private investment accounts “would trigger cuts in guaranteed benefits under the commission’s so-called clawback provisions.”
“Clawback” refers to personal account proposals that would let the government claw back some of the accumulated assets in the accounts to improve the trust fund’s solvency.
“The commission gave careful consideration to ‘clawbacks’ and chose not to recommend any such proposals. This is because we believe it is important for individuals to retain full ownership over the proceeds in the accounts,” the administration said.
“Individuals would retain ownership over 100 percent of the proceeds in their personal accounts and no adjustments to traditional Social Security benefits would be made as a function of the accumulations in these accounts,” the letter said.
Mr. Corzine has further charged that individual investment accounts “undeniably would drain the trust fund of trillions of dollars that are needed to pay guaranteed benefits. The trust fund already has a $3.7 trillion shortfall. Taking money out of the trust fund will only make that shortfall worse.”
But the administration said that this assertion “is at odds with the impartial analysis of the Social Security actuaries who found that the commission’s proposals would reduce pressures on general revenues.” The three options proposed by the commission would reduce the need for general revenues to shore up the system by $1.7 trillion to $11.3 trillion during the next 75 years, they said.
In a radio address last month for the Democrats, Mr. Corzine said that the commission’s plans “would require drastic reductions in future Social Security benefits. For some seniors, these cuts could exceed 25 percent.”
But the administration said that the proposals “do not ‘cut benefits’ for anyone. In all of the proposals, benefits would grow at least as fast as inflation, and at least as fast as is sustainable under current law, whether or not participants opt for accounts.”
“For those who do not opt for accounts, benefits would grow at the rate the current system can afford. If this rate is deemed unacceptable, a higher rate of growth than this can be achieved in only two ways: 1) raising taxes, or 2) opting to participate in personal accounts,” the administration letter said.
Mr. Corzine also charged that investments in personal accounts could “collapse” with a downturn in the stock market and that workers nearing retirement could lose all of their savings, as happened to employees with Enron Corp.’s bankruptcy.
“But the commission proposals do not permit concentrated purchases of small numbers of stocks. Because the accounts could be invested only in broadly diversified funds, the only way the value in an account could ‘collapse’ would be for the market as a whole to collapse to a point below where it was 40 or more years ago, something that has never happened,” the administration said.
Moreover, workers “need not accept any stock market risk, if they choose to invest solely in inflation-indexed Treasury bonds,” the letter said.
The administration also denied Mr. Corzine’s charge that the commission’s plans would “force millions of Americans to delay their retirement.”
“The commission’s proposals would not change retirement or eligibility ages in any way. Individuals could still retire at age 62 if they wished. Also, because the commission proposals would allow for higher total benefits than payable under current law, individuals would be able to afford to retire at least as early as under the current system,” the letter said.