President Bush traveled to Portsmouth, New Hampshire on Wednesday in a continuation of his efforts since his State of the Union address to drum up support for Social Security reform. In particular, the president promoted his idea of “personal savings accounts” to allow younger workers to set aside a portion of their tax obligations in private accounts.
“I’m sure there are some, when they heard the State of the Union, if they listened to it, that said, why is he spending so much time on what had been — used to be called the ‘third rail of American politics?'” Bush told the audience. “That means, if you touched it, you were politically electrocuted. I guess that’s what it meant.”
“I’ve touched it,” the president added. “I touched it in 2000, when I campaigned here and around the country; I touched it in 2004; and I really touched it at the State of the Union, because I believe we have a problem.”
The president recalled that in the 1950s, there were sixteen workers for each Social Security beneficiary. Now, the ratio stands at slightly more than three workers for each recipient.
“And when — and down the road it’s going to be 2 to 1,” Bush said. “So you can see the formula begins to get a little disturbed. It makes it hard to pay the promises.”
Although the president’s plan for personal savings accounts doesn’t address the overall solvency issue of the program, President Bush continues to highlight the idea any speech regarding Social Security reform.
“Now, I’ve got an idea that I’d like for Congress to consider, and I want to share the idea with you here,” Bush said. “It’s a novel idea. Oh, it’s really not that novel. As a matter of fact, it’s a part of the federal employee retirement plan.”
The president added, “It’s a thrift benefit plan. It’s a plan that allows federal employees to set aside some of their money and put it in safe stocks and bonds, so they get a better rate of return on their money than they would otherwise.”
Democrats have criticized the idea of personal savings accounts, calling it “risky” and an effort to “privatize” Social Security.
“For a 27-year-old worker with a spouse and two children, Social Security provides the equivalent of a $403,000 life insurance policy,” House Minority Leader Nancy Pelosi (D-CA) said in a statement released Tuesday. “No private pension or savings account can provide this kind of protection.”
Pelosi added, “But if President Bush gets his way, neither will Social Security. For widows and orphans, the President’s ‘ownership society’ will mean that they will be ‘on their own.'”
The House minority leader said that under one of the proposed Social Security reform plans, “survivor benefits for young children could be reduced by approximately 33 percent in 2050, and by 48 percent by 2075.”
“The cuts will fall particularly hard on African-Americans, who make up a large number of those people receiving survivor benefits,” Pelosi said.
In prepared comments before the Senate Committee on Banking, Housing, and Urban Affairs on Wednesday, Federal Reserve Chairman Alan Greenspan said that benefits, such as Social Security and Medicare, promised to a “burgeoning retirement-age population,” threaten to “strain the resources of the working-age population in the years ahead.”
“Real progress on these issues will unavoidably entail many difficult choices,” Greenspan said in comments released by the Senate Banking Committee. “But the demographics are inexorable, and call for action before the leading edge of the baby boomer retirement becomes evident in 2008.”
In touting the merits of personal savings accounts, President Bush said that participants in the voluntary program would “get a better rate of return on your money than that which is in the Social Security system.”
Assuming four percent of payroll taxes are set aside in the personal savings account, the president said, “If you’re a younger worker who averages $35,000 over your lifetime, and you put the money set aside — the 4 percent allowed to be set aside into a personal account, because of the compounding rate of interest, … you’ll accumulate $250,000 when it comes time to retire.”
“So you’ve got money in the Social Security system, however much Congress can afford, plus your own nest egg of $250,000,” Bush explained. “That’s for a worker who earns $35,000 over his or her lifetime.”
The president said it “makes sense” for younger workers to hold their own account, because “when they pass on they can leave their own assets to whomever they choose.”
“I think that’s a wonderful idea,” Bush added.