Strengthening Social Security:

1. PRIVATE ACCOUNTS

Younger workers (born after 1949) would be given the option to divert up to a third (4 percent) of their Social Security payroll tax up to $1,000 (to rise $100 per year) into private, or personal, stock and bond accounts.

2. INVESTMENT CHOICE

The private account holder would choose from three investment options, all managed under a government contract.

3. RETAIN SOCIAL SECURITY ACCOUNT

After the 4 percent is diverted, the 8.4 percent balance of the current 12.4 percent Social Security payroll tax would be retained in a Social Security account as before.

4. REDUCED BENEFITS

In exchange for the opportunity to earn a higher return on the 4 percent private account, when they retire, the private account holders would get a smaller pension from Social Security (to be determined) along with their portfolios from their private accounts.

5. PROTECTED UNTIL RETIREMENT

The private account portfolio would not available until retirement. It could be used to increase monthly benefits or as a lump sum supplement.

6. FORMULA ADJUSTMENTS

Future benefit increases would be linked to inflation instead of wages (which generally increase faster than inflation). 7. TRANSITION The plan would be phased in from 2009 through 2011.

8. AN ASSET THAT CAN BE PASSED ON

Private account portfolios would be owned by citizens and could be bequeathed to loved ones at death.

The Plan Advances President Bush’s “Ownership Society” Agenda

Giving people ownership of their savings is a good thing in its own right. It will empower workers, lessen dependence on government, and encourage citizens to save. People should be allowed to invest their own money, not the government.

It is right to start now before the huge baby-boom generation starts to retire.

The plan could be a model for Medicare reform, which is even more pressing but politically difficult. The plan opens the door to reform other entitlement programs.

Other countries have used private accounts successfully for years.

A Better Deal, Greater Security

Stock and bond investments offer greater returns than U.S. Treasuries.

An average return after inflation and expenses should be 4.7% - significantly better than the 3.5% after inflation the trust fund currently earns.

A dollar a year invested for the next 37 years (until 2042) at 3 percent interest produces $66. At 4.7 percent, $95.

A death benefit would allow private accounts to be passed on to loved ones.

Safeguards Are Included

The plan includes rules against risky behavior: there would be limited investment choices; funds could not be withdrawn before retirement or borrowed against.

Will Ultimately Save Money

The government would see its revenues fall in the short term, but its future liabilities would be lower also.

The Plan Does Not Address the Key Issue

Private accounts will do very little, if anything, to address the Social Security shortfall.

Wall Street, not retirees, would be the real beneficiaries.

The Plan Creates Enormous New Debt

Since money diverted into private accounts would not be available to pay benefits to current retirees, the government would have to borrow to pay people now.

Upfront transition costs will add $754 billion to government borrowing over ten years (some project even greater debt). This could upset financial markets and drive up interest rates.

The long-term burden of President Bush’s first term tax cuts and spending increases is three times larger than the looming Social Security shortfall.

The Plan Would Not Increase National Savings

Our nation’s savings rate will not improve because any increase in private savings will be offset by higher public borrowing.

The Plan Is Too Risky

The stock market is too volatile for a national program intended to provide base level security for seniors. The market has performed below 3 percent per annum in nine different 20-year periods.

If future benefits are tied to inflation instead of wages, retirees will not see the incremental increases they’ve had in the past and it will hurt the poor.

Every time someone shifts a Social Security dollar into a private account, someone else must be persuaded to take a dollar currently invested in the private economy and place it in government bonds.

(The President’s plan is the linchpin) “from an entitlement society to an ownership society”
– Stephen Moore, author Bullish on Bush: How George W. Bush’s Ownership Society Will Make America Stronger

“If you’re going to move to private accounts, which I approve of, I think you have to do it in a cautious, gradual way.”
– Alan Greenspan Federal Reserve Chairman

“Personal accounts will respect individual autonomy and competence… Personal accounts will narrow the wealth gap by facilitating the accumulation of wealth by pensions of modest means – bequethable wealth.”
– George Will

“Anti-choice pundits are missing the fundamental point about personal retirement accounts: it’s about owning your own retirement savings…the government cannot touch it…it’s yours to pass on to your kids and grandkids.”
– Cato Institute

“Several countries have enacted Social Security reforms that allow workers to invest some of their Social Security contributions in private savings plans. These efforts are proving to be both popular and successful.”
– Social Security Reform Center

“…in his zeal to privatize Social Security – a quest which is driven more by ideology than economics – president Bush is obscuring better approaches to a comfortable retirement for all Americans.”
– New York Times Editorial

“Our President’s determination to partially privatize Social Security …is less a matter of economics than ideology. It’s anti-government and pro-market ideology. Bush’s ‘ownership society’ is an ‘on-your-own society.’ ”
– Ellen Goodman

“By the time privatization started to save money, if it ever did, the federal government would run up around $15 trillion in extra debt.”
– Paul Krugman

“As the President proposes to ‘reform’ Social Security, it’s notable that the state he served as governor leads the nation in senior poverty, with 17.3 percent of the elderly living beneath the poverty line.”
– Harold Meyerson

“Taking some of the money these workers pay into the system and diverting it into newly created private accounts would weaken Social Security and put benefits for future generations at risk.”
– Marie Smith, AARP President

For it:

Cato Institute (www.socialsecurity.org)

Citizens for a Sound Economy (www.cse.org)

For Our Grandchildren (www.forourgrandchildren.org)

Generations Together (www.generationstogether.net)

Heritage Foundation (www.heritage.org)

Social Security Choice (www.socialsecuritychoice.org)

United State Seniors Association (www.unitedseniors.org)

USA Next (usanext.org)

The White House (www.whitehouse.gov/infous/social-security)

Against It:

American Association of Retired Persons (AARP) www.aarp.org/socialsecurity

AFL-CIO (www.aflcio.org)

Campaign for America’s Future (www.ourfuture.org)

Catholic Charities, USA (www.catholiccharitiesUSA.org)

MoveOn (www.moveon.org)

Rock the Vote (www.rockthevote.com)

Urban Institute (www.urban.org)

U.S. Action (www.usaction.org)