June 3, 2005
BUILD THE AARDVARK HIGHER:
Cracking the Nest-Egg Problem: A fundamental question colors the debate over Bush's personal-account plan: Is Social Security intended more for savings or for insurance? (Warren Vieth and Joel Havemann, June 3, 2005, LA Times)
[I]n the view of Bush's political opponents, his sales pitch is based on a false comparison between social insurance programs and retirement savings accounts, as well as assumptions about future investment returns that may prove unrealistic.
"The sort of support provided by Social Security is really hard to replace in the private sector," said Kenneth Apfel, Social Security commissioner during President Clinton's second term.
Nevertheless, the nest-egg anecdotes have become a staple of Bush's roadshow remarks.
"If you're a 20-year-old making $8 an hour … you'll end up with a nest egg of $100,000 when you're 63," Bush said Thursday. "If you're a police officer and a nurse … when you retire, both of you will have a combined nest egg of $669,000."
Bush wants Congress to let workers born in 1950 or later divert a third of their Social Security payroll taxes into investment accounts they would control. These accounts would be part of a broader plan to ensure Social Security's solvency by reducing the future growth of government-provided benefits for upper-income and medium-wage workers.
Although the accounts by themselves would do nothing to close Social Security's long-term funding gap, Bush contends that their bigger investment returns would help future retirees recoup the benefit reductions needed to shore up the system.
Bush's argument is based on his assertion that Social Security returns 1.8% on the investment of average workers who contribute payroll taxes to the system over a lifetime.
By contrast, the White House says, a personal account containing a conservative mix of stocks and bonds would earn an average return of 4.6% a year, assuming the nation's financial markets perform as well in the future as they have in the past.
But the president's critics don't buy that argument. When Bush contrasts the 1.8% rate of return on traditional Social Security with the 4.6% projected return on stocks and bonds, they say he might as well be comparing apples and aardvarks.
If you want to make an omelette you've got to crack a few apples. Posted by Orrin Judd at June 3, 2005 6:00 AM