Bush Declares Victory and his Agenda: Social Security Tops the List

On November 4, 2004, a day after he declared victory, President George W. Bush confidently laid out his agenda for the next four years.

At the top of the list: Social Security. Bush renewed his promise to reform the troubled program through private retirement savings accounts, a goal that may be hard to pass through Congress.

Social Security’s problems

The nonpartisan Congressional Budget Office projects that Social Security will be running a deep deficit by 2018 or 2019 and will be completely out of money by 2052.

Much of the program’s financial trouble is due to shifting demographics. When the program was first created in 1935, there were about 42 workers for each retiree. Now, the ratio is much larger at about 3 workers for each Social Security beneficiary.

Both Democrats and Republicans agree that something must be done to repair the program, but the parties disagree on how to fix it.

Reforming Social Security - the past

Social Security, the entitlement benefit for seniors aged 65 and older, has barely been touched since 1983, when Congress raised the retirement age, increased payroll taxes, and delayed cost-of-living increases in order to decrease costs and increase revenue.

President Bush is wary of these types of reforms and would prefer to partially privatize the program. Since his campaign in 2000, Bush has been promising to overhaul Social Security. His idea is to allow younger workers to use a portion of their payroll taxes to invest in private, individual savings accounts, similar to 401(k)s.

.Is partial privatization a good idea?

It may be difficult to get Bush’s Social Security reforms through Congress. Democrats say that the President’s plan doesn’t make sense when younger workers’ taxes pay for today’s retiree benefits. The cost of creating individual retirement accounts by carving out money that would have been paid in taxes could cost the Treasury as much as $1 trillion, so the Federal Treasury would need to borrow money by selling bonds (often to the Chinese and Japanese), cut benefits, or both.

The President hasn’t announced which path his policy would take, but AARP, an influential seniors group, has already opposed the idea. AARP has suggested an alternative solution: that wealthier Americans pay more into the Social Security system.

But Republicans argue that workers are better off managing their own retirement investments, an idea that the financial services industry applauds. Bush’s philosophy of an "ownership society" is that people should take responsibility for managing their retirement savings and healthcare options.

This view is in contrast to the Democrats’ philosophy, which is that all Americans are entitled to a secure base of retirement benefits and health care, because individuals can never know for sure whether they will be well off or not in their older years. According to this line of thinking, the federal government can and should use tax dollars to ensure basic benefits to everyone.

There is another view that instead of "carving out" money from our tax obligations to each other, that younger people be allowed to "add in" extra money to a private retirement savings account. Then when they take a risk in the stock market with those funds, the base entitlement fund will still be there for them.

Also under discussion is how to ensure that individuals know enough to invest their retirement savings wisely. One idea is to have several pools of stocks that individuals could invest in - chosen by experts so as not to be too risky and yet provide the possibility of growth in value. At issue is whether this is a bonanza for stock brokers - who is to choose what stocks? How to avoid conflict of interest?

An old campaign promise for a new time

When President Bush first proposed privatizing Social Security, it was the year 2000 and the world was a different place. The economy and stock market were soaring, terrorism was "out there" but not "over here," and Social Security had a surplus.

In that world, that context, most Republicans thought it made sense to consider privatizing Social Security. The surplus could cover current retirees’ benefits as young people diverted their tax dollars to investments that would surely skyrocket in the robust market.

Now, some Republicans and most Democrats doubt privatization. Not only is the Social Security surplus gone, but also the treasury is in a deep deficit that affects all sorts of government spending, not just Social Security. In addition, the past four years have revealed the stock market to be more volatile than many thought.

What do you think?

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Article Posted on: 11/12/2004