News Analysis: A Critical Look at Social Security Reform
By Kevin Mooney, 02.17.05

President Bush is taking his Social Security reform directly to the public to short-circuit congressional opposition. Today, he made appeals to members of Congress to make suggestions regarding the reform.

Politicians with an eye toward re-election typically shied away from proposing any major changes popular government programs. But Bush, has openly talked about instating a long-lasting change to Social Security since his first run at the presidency.

In his second term, Bush is betting on a public that will be receptive to honest talk about a program they know to be unsustainable.

“You can see the mathematical problem, right? Greater promises to more people who are living longer, with fewer payers,” Bush asked during a recent visit to Nebraska.

During the State of the Union Address, Bush acknowledged Sen. Ben Nelson, as a Democrat who could provide support for the reform.

Reform Break Down
Bush proposes the creation of private investment accounts as alternative to the current system. Younger workers who face diminishing returns from Social Security over the long-term should be given the option to invest a portion of their payroll taxes into private accounts, Bush said during his State of the Union Address.

Bush calls for shifting up to one-third of the system’s payroll taxes into individual private accounts beginning in 2009. The gradual transformation of a long-standing “pay-as-you-go” government-run retirement system into a wealth building capitalist tool would remove a major linchpin from the welfare state.

“Over the next few decades that number will fall to just three workers per beneficiary,” Bush said in his address. “With each passing year, fewer workers are paying ever-higher benefits to an ever-larger number of retirees.”

He said that the result of the reform will be evident in 13 years.

“Social Security will be paying out more than it takes in,” Bush said. “And every year afterward will bring a new shortfall, bigger than the year before.”

The majority of the Democratic party is opposed to reform as are a number of powerful special interests. One of these groups is the American Association of Retired Persons (AARP).

Bush will be required to fight tenaciously if he hopes to secure the types of changes discussed at the State of the Union. But what is overlooked is how many number of think tanks and special interest groups that ardently support Bush’s call for private accounts.

Heritage Foundation
A series of reports produced by the Center for Data Analysis at the Heritage Foundation joins the performance of private accounts with the rate of return yielded through the current system. The data accumulated for the Heritage study demonstrates to the power of the stock market.

A recent study showed that private accounts far outpace the returns yielded through the status quo. And younger workers would be ideally positioned to leave wealth to succeeding generations of family members.

Powerful Opponents
In his address, Bush said his proposed changes will not impact workers ages 55 years and older. The system will remain solvent long-enough to cover benefits for this age bracket. Nevertheless, Bush warned lawmakers against delaying necessary changes.

“Our society has changed in ways the founders of Social Security could not have foreseen,” Bush said. “In today's world, people are living longer and, therefore, drawing benefits longer. And those benefits are scheduled to rise dramatically over the next few decades.”

AARP: Anti-Reform
Major public policy figures said the problem is not as vexing as Bush suggests. Democratic leaders who responded to the State of the Union address said more modest changes within the current system would be more appropriate.

The AARP, a powerful lobbying group representing more than 35 million senior citizens, is mobilizing against private accounts. The organization has drawn up a list proposals as a response to Bush’s plan. A joint statement issued by AARP President Mary Smith and CEO Bill Novelli expounded on the dangers of private accounts.

“AARP is opposed to private accounts that take money out of Social Security. In addition, private accounts are expensive,” according to the release. “Just to switch to this new system could require as much as $2 trillion or more in benefit cuts, new taxes or more debt.”

The AARP also said that most Americans would have to pay twice as much in the new plan to keep the current retirees financially stable on top of providing money to private accounts.

“Some critics of these personal accounts think that Wall Street, not retirees, would be the real beneficiaries,” the release said.

The Democratic Response
Senator Minority Leader Harry Reid and Congresswoman Nancy Pelosi, the House Democratic leader, delivered a formal response to the president’s State of the Union Address. Pelosi warned against accepting any reforms that would terminate guaranteed government benefits.

“Democrats see strengthening Social Security as the cornerstone of independence for our seniors and for people with disabilities,” she said. “President Bush sees undermining Social Security as the cornerstone of his ownership society.”

Pelosi also said the Democratic party will resist any changes that woill increase the federal deficit.

Democratic Sen. Reid called private accounts “dangerous” and said the president was playing “roulette” with the nation’s retirement system.

If It’s Good Enough for Congress...
In his State of the Union Address, Bush pointed out that members of Congress, like all federal employees, already have the option of placing a portion of their payroll checks into investment funds via the Thrift Savings Plan. This reality raises an awkward question for the political class: If it’s good enough for members of Congress, why not make it available to the public at large?