Cracking the Nest-Egg Problem
HOPKINSVILLE, Ky. — As President Bush tours the country to promote his Social Security restructuring proposal, he has taken to describing the sizable nest eggs he says workers could accumulate if Congress would only let them put part of their payroll taxes in personal investment accounts.
"Right now, when we collect your money
Yet in 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
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.
For one thing, the 1.8% figure is unrelated to the interest rate paid by the government on surplus Social Security tax revenue, which by law is invested in government bonds. Rather, it was derived by estimating the benefits collected during a retirement of typical length and comparing that to total taxes paid.
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