Bush Plan for Social Security
During the 2000 presidential campaign, George W. Bush promised voters that he would rescue Social Security when he became president. Four years later, they’re still waiting.Although the president’s eight-member Social Security Commission has proposed three different rescue plans for Social Security, Bush hasn’t chosen one to pursue. When President Bush took office in 2001, the federal budget had a $5.6 trillion surplus, and he pledged to use part of that money to help shore up Social Security. That didn’t happen, and under the Bush Administration the record budget surplus quickly became a $413 billion budget deficit, the worst since World War II.
The only clear strategy Bush has outlined for Social Security is to partially privatize the system by establishing personal retirement accounts, which would allow workers to invest a portion of their Social Security taxes.
Will Privatizing Help Social Security?
Bush argues that privatizing Social Security would give workers more control over their future and a better return on their money than they get under the current Social Security system.
Because Social Security is a pay-as-you-go system, however, switching to a system that diverts a portion of current public revenue into private investment funds would require at least a trillion dollars (read that as one million dollars times one million) in transition costs to keep the current system going while the change took place.
In addition, a University of Chicago study concluded that the financial services industry would reap a $940 billion windfall for managing those private investment accounts, while expenses could take 20 percent of the typical beneficiary's account.
Bush acknowledges the costs of privatizing Social Security. During one of his debates with Kerry, Bush said ''we're of course going to have to consider the costs." Yet throughout the campaign, Bush has shied away from defining those costs or proposing a way to pay for them.
Kerry Plan for Social Security
U.S. Senator John Kerry has said a lot about what he won’t do concerning Social Security reform, but not much about what he will do.Kerry says he won’t increase Social Security taxes, won’t raise the retirement age, and won’t cut benefits. At first, Kerry said he wouldn’t cut benefits “for people who rely on Social Security,” leaving open the idea that he might reduce or eliminate benefits for high-income retirees. As the campaign progressed, however, he said several times that he would not cut benefits for current or future retirees.
Rebuilding the Economy to Save Social Security
Many experts have said that some combination of those strategies may be necessary to rescue Social Security from eventual collapse, but Kerry argues that the best way to head off the Social Security shortfall is to balance the federal budget, eliminate the deficit, and get the economy moving again.
In an interview with AARP, Kerry said: “I will never privatize Social Security. I will not cut the benefits, and I will not raise the retirement age. I believe we can guarantee Social Security is whole and strong for the future by being fiscally responsible. If anything, I would like to fight for an America where people would retire earlier, not later. The concept of raising the retirement age is coming at it backwards.”
Kerry has a point. A robust economy and a large budget surplus would go a long way toward giving government the tools it needs to develop and carry out an effective solution to the Social Security dilemma, but his strategy doesn’t address the fundamental problem of too many beneficiaries supported by too few working taxpayers.
Kerry’s strategy to save Social Security by rebuilding the economy and balancing the budget might slow the demise of Social Security, but it wouldn’t solve the problem for good.
Where It Stands
According to some estimates, ensuring the financial solvency of the Social Security system for the next 75 years would cost between $4 trillion and $11 trillion. (The latter is roughly equivalent to the annual U.S. gross domestic product.)Neither Bush nor Kerry has put forth a clear and detailed plan to deal with this problem, but some experts believe that lack of clarity may be an effective political strategy for addressing the problem during the next four years.
Robert Pozen, chairman of MFS Investment Management of Massachusetts and a member of Bush’s Social Security commission, told the Boston Globe that any detailed plan either candidate might propose during the campaign would be criticized so thoroughly by his opponent that it would have little chance of passage later.
''My view is that probably the only hope of doing something in the next term is to be pretty vague about it in this campaign," Pozen said. ''I think it is wise for both candidates not to get into that detail."
While that may be good political strategy for the presidential candidates, it offers little comfort to voters who are trying to decide which man would do the best job of reforming Social Security and ensuring ongoing benefits for Americans who need them.