Published on Monday, February 7, 2005 by the San Francisco Chronicle
Do The Math On Dubya's Social Security Reform
by Harley Sorensen
As the lawyers like to say, "Falsus in unum, falsus in omnibus." The rest of us have to settle for "once a liar, always a liar."
We tend not to believe people who have previously lied to us, even if one of those people is the president of the United States.
President George W. Bush clearly lied to us about the need to start a war against the people of Iraq, so why should we believe him now as he barnstorms the country in an attempt to sell us on his Social Security "reform" plan?
("Reform"? That's funny. It's more like deform. Always be leery of a politician who says he's going to "reform" something.)
The centerpiece of Bush's plan, which is still evolving, is the "privatized" or "personalized" account. The way Bush explains it, that sounds like a great idea, but it hasn't worked out well in Chile, where it's been in effect for 25 years, and so we have to wonder whether it'll work here.
The "private" Social Security investment accounts are being pushed by the Heritage Foundation, whose ideas almost always seem designed to make the very rich very richer.
Bush talks about developing an "ownership society," in which we all are masters of our own fate. Give the worker a chance to invest his own money as he sees fit, so goes the theory, and he'll do much better than the hated United States government has ever done.
(As an aside, have you ever wondered why conservatives hate the United States so much? In their view, their government always fails -- except in fighting wars -- and private enterprise always succeeds. Yeah, sure, like how many airlines have faded away in the past 20 years, and how many are operating in bankruptcy now? Just for example.)
But, wait! The "private" or "personal" account is neither. The investor in such an account does not have control over his own money. He can't invest where he thinks best. He has to invest only in a government-approved fund. So buying something like Apple or Microsoft stock is out. But don't despair, the government will still give you a choice between A, B or C.
Some freedom! Some "ownership."
And what happens to your "personal" account when you reach retirement age? The government takes it. I kid you not.
That part of the plan, as explained to The New York Times last week by an unnamed White House official: "When people reach retirement age, they would have to put enough of the money in an annuity so that the total of their traditional benefits and their annuity payments would meet the poverty level, $12,490 for a couple in 2004."
So the government will tell you exactly how to spend part of your retirement account. If there's anything left over after the government takes out what it wants, you get to keep the rest and spend it as you see fit.
How are you going to build your little nest egg? Again, according to The Times, you'll be allowed to invest up to 4 percent of your wages, to a maximum of $1,000 at first. "That amount would increase by $100 each year, plus an amount corresponding to the average national growth in wages."
Do the math. After the government takes out its chunk to create your annuity, how much are you going to have left over to buy that penthouse with a Golden Gate view?
Just offhand, the benefits of the Bush scheme seem paltry, if they exist at all. The possible risks seem to greatly outweigh the possible benefits.
The benefits are paltry in Chile. In a Jan. 27 New York Times article, the writer used the case of Dagoberto Saez as an example.
Saez, 66, plans to retire in March. He now earns under $950 per month. His pension fund, after nearly 24 years of contributions, will finance a 20-year annuity paying $315 a month. That compares with coworkers who stayed in the old system who get almost $700 per month, good for life.
Said Saez: "I made the mistake of believing the promises they made to us back in 1981."
The thing that worries me about Bush's Social Security scheme is its cost. The money we and our employers now pay as Social Security tax is used to pay for today's Social Security benefits. If we take money out of the system for individual investment accounts, there won't be enough left over to continue to pay full benefits.
Bush has indicated that today's benefits will not be reduced, although his wording on this subject in his State of the Union Address was a bit cagey. He assured recipients that the "system" would not change in any way. All it takes for a reduction of benefits is an act of Congress, which can be performed without changing the system. So your benefits could be reduced substantially and, technically, Bush would have told the truth.
Clever fellow, that Bush.
I don't trust Bush. He got us into two wars in his first term, and now he's rattling sabers over Iran, a nation that poses no threat to us. Although Social Security needs to be updated, and it's wise to do it now rather than later, Bush's plan seems like a plan to destroy it, not fix it.
Bush is a good salesman. At his State of the Union Address, he looked tan and fit, competent and trustworthy. If I had to judge him by his appearance and his words, I'd be all for him. But he has a history of saying one thing and doing the opposite ("I'm not into nation-building," "I'm a uniter not a divider"), so I'm going to be very cautious about buying anything he's selling.
His Social Security scheme is a case in point. The American people should soundly reject it
Harley Sorensen is a longtime journalist. His column appears Mondays in the San Francisco Chronicle. E-mail him at firstname.lastname@example.org.
© 2005 San Francisco Chronicle