COLUMBIA, S.C., April 18 -- President Bush told a joint session of the South Carolina legislature on Monday that younger Americans will prosper if they are allowed to invest some of their Social Security taxes in the stock market -- and suffer if Congress denies them the chance.
Despite a recent plunge in stock prices, Bush said history shows Americans will be much better off putting their money into stocks and bonds over the long haul than relying on returns of the current Social Security system. Bush suggested it is not unreasonable to expect an annual yield of 9 percent on market investments, which is much higher than some economists forecast for coming years.
President Bush is greeted by South Carolina lawmakers as he arrives for a speech on his Social Security proposal at the State House in Columbia.
(Gerald Herbert -- AP)
"Every younger American should have the opportunity to take advantage of the compounding rate of interest, to earn a better return on his or her own money," Bush told the bipartisan audience. "A Social Security system that includes personal accounts will give all Americans, not just a few, but all Americans, a stake in the greatest creator of wealth the world has ever known."
The president did not mention that personal accounts would make Social Security checks susceptible to precipitous dips in the market, which critics say is particularly troublesome for lower-income workers who rely on Social Security's guaranteed benefit for the bulk of their retirement income.
Bush wants Congress to allow workers 55 and younger the option to invest a portion of their payroll taxes in a small menu of tightly controlled stock and bond funds. The Bush plan, which would be phased in over time, would eventually allow workers to put nearly two-thirds of the 6.2 percent Social Security tax they pay into private accounts. The money could be passed on to family or friends when the account holder dies, and most of it could be taken out in a lump sum in retirement. The accounts would come at a price, however: a reduction in guaranteed Social Security benefits.
"Telling younger workers they have to save money in a 1930s retirement system is like telling them that they have to use a cell phone with a rotary dial," Bush said to laughter. "If young people are confident they can improve their retirement by investing in a conservative mix of bonds and stocks, the government should not stand in their way."
Almost every congressional Democrat opposes the plan, in part because it would also cost the government at least $2 trillion to transition from the current, pay-as-you-go system to one featuring private accounts.
Bush, who is on the last round of a 60-day campaign to promote changing the 70-year-old federal retirement system, did not have to look far Monday to find other obstacles to his plan and his approach for selling it to Congress. The front page of the State newspaper here carried a letter warning that restructuring Social Security is "going to be a hard sell, even in conservative South Carolina," a state Bush won easily in November.
And seated prominently in the audience was Sen. Lindsey O. Graham, one of four South Carolina congressional Republicans who flew to the event with Bush aboard Air Force One. Graham, who the president called a leader on the issue, has been pressuring Bush to spell out the mix of benefit cuts and tax increases he favors to shore up Social Security for generations to come.
In an interview Friday, Graham said Bush has a responsibility not just to talk about personal accounts, which do little to address the long-term fiscal problems confronting the system, but also to start offering some specifics -- and leadership -- on benefit cuts, eligibility requirements and possible tax increases.
Bush is leaving those details up to Congress for now, while he focuses on the need to act quickly and make personal accounts part of the solution. He is looking to Senate Finance Chairman Charles E. Grassley (R-Iowa) to take the lead role, starting later this month, to detail the remedy.
In his speech here, Bush warned that if Congress fails to act, Americans could face a payroll tax as high as 18 percent -- it is currently 12.4 percent, half of which the employer pays -- or "drastically" reduced benefits. "Is that the legacy you want to leave on younger generations of younger Americans?" he asked.