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Bush’s Social Security Plan Has Promoters and Detractors

By Laura Wood

The Social Security Board of Trustees has predicted that Social Security will run out of enough revenue to pay full benefits by the year 2042. After this year, they predict that only 70% of expected benefits will be paid by the system as it currently operates. As a result, many disputes have arisen concerning the future of Social Security and how to remedy this problem. Last week, an economic summit was held to discuss the current state of Social Security. President Bush began to cement his proposal, which would allow employees to invest a percentage of the money that they contribute to Social Security. President Bush declared, "As we continue to work together to keep Social Security strong and reliable, we must offer younger workers a chance to invest in retirement accounts that they will control and they will own." The current payroll tax for Social Security is 12.4%. Workers and employers each pay 6.2%. Under Bush's plan, all workers, no matter their income level or age, would be able to invest 4% of their contribution into private sectors, including stocks and bonds. Workers would be able to diversify their investments in order to minimize risk.

Laura Wood is an FBA Journalism Intern from Siena College, and regular writer for TIC. (Photo - Kimberly Feliciano)

As a result, many disputes have arisen concerning the future of Social Security and how to remedy this problem. Last week, an economic summit was held to discuss the current state of Social Security. President Bush began to cement his proposal, which would allow employees to invest a percentage of the money that they contribute to Social Security. President Bush declared, “As we continue to work together to keep Social Security strong and reliable, we must offer younger workers a chance to invest in retirement accounts that they will control and they will own." The current payroll tax for Social Security is 12.4%. Workers and employers each pay 6.2%. Under Bush’s plan, all workers, no matter their income level or age, would be able to invest 4% of their contribution into private sectors, including stocks and bonds. Workers would be able to diversify their investments in order to minimize risk.

The White House views this plan as beneficial to the current system in the long run because it will allow younger investors to gain a bigger return in revenue for their retirement fund. Bush says, “Although these proposals differ in details, they are consistent in showing that if we give workers the opportunity to invest a portion of their wages in personal accounts, Social Security will be able to offer higher benefits than would otherwise be the case.”

Bush’s plan would also protect the funds of those who have just retired or are about to retire in order to ensure that they receive full benefits. Meanwhile, employers would be required to provide quarterly benefits statements to their employees instead of annually. Bush’s Retirement Security Advice Act would encourage employers to provide workers with easy access to investment advice.

Opponents of this plan, including leading financial advisors and Democrats, feel that Bush’s plan would not compensate for the lack of revenue currently being contributed to the Social Security system.

“Implicit in creating private investment accounts is a reduction in future Social Security benefits from the levels guaranteed in present law,” Democrats argue. Thus, many feel that the only way to permanently solve the current problem is to either raise payroll taxes in order to increase the amount contributed by workers and employers or to reduce benefits given to retirees. Some also propose an increase in the retirement age in order to cut back on the amount of benefits doled out while also creating more revenue for the Social Security system. Since suggested figures show that safeguarding the Social Security system over the next 75 years would require a 15% increase in payroll taxes and a 13% cut in benefits, or a combination of both, opponents of Bush’s plan feel that it will do nothing to improve these statistics.

Furthermore, since President Bush has ruled out raising payroll taxes, his camp argues that the ability to increase the revenue in retirement funds is appealing to workers from all backgrounds. Concerning personal investment accounts, Treasury Secretary John Snow said, “They provide people with this ability to earn higher rates of return than otherwise would be available on their investment in Social Security. This opportunity to earn a higher rate of return is pretty attractive.” Thus, instead of relying completely on the Social Security system for retirement incomes, workers will have the ability to gain a perhaps higher level of interest from their private investments.

However, opponents also argue that Bush’s private account investment plan would undercut the benefits provided for current retirees, soon to retire workers, and younger workers who will retire in 20 or more years. The New York Times states, “Based on an analysis done by the Social Security Administration and the Congressional Budget Office, it [Bush’s plan] will result in significant benefit reductions from the levels promised under the present system.” Furthermore, challengers to Bush’s plan argue that diverting investments from the system to the private sector will result in a loss of revenue that will only decrease the amount of benefits received by workers.

While President Bush offers a plan of privatization in order to boost the amount of individual benefits received by younger workers, opponents argue that this plan is not enough to keep the benefits given by the Social Security system from falling below today’s law regulated levels. In the end, the dispute lies not in whether a change to the Social Security system is needed but, instead, what changes should be made in order to ensure that Social Security exists in 50 years.

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