President Bush yesterday stepped up his campaign to partially privatize Social Security, hosting a talk-show-style conversation with supporters of a plan to allow participants to funnel a portion of their payroll taxes into private investment accounts.
Speaking before an audience of several hundred at the ornate Andrew W. Mellon Auditorium in downtown Washington, Bush said his plan would bolster an outmoded Social Security system that he described as careening toward insolvency. "If you're 20 years old, in your mid-twenties, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now," Bush said.
President Bush used anecdotes to boost his case for altering Social Security.
(Larry Downing -- Reuters)
Bush also claimed an election mandate to change the entitlement program for the retired and the disabled. "I campaigned on this issue of Social Security, and the need to strengthen it and reform it," he said. ". . . This is part of fulfilling a campaign pledge."
The president warned members of Congress, some of whom have voiced deep skepticism about his plan, that they could face dire political consequences if they do not confront the looming Social Security problem. "I happen to believe people who have been elected to office who ignore problems will face the price at the ballot box," he said. "I think more and more people recognize we have a problem."
But some critics say Bush is exaggerating the Social Security problem to build support for his plan for private accounts. For one, they say, the term "bankrupt" does not apply to Social Security. If nothing is done to the system, Social Security could still pay about 73 percent of promised benefits in 2042, when the system's "trust fund" of Treasury bonds will be depleted, Social Security's chief actuary has calculated.
Even after adjusting for inflation, that 27 percent cut in benefits would leave monthly Social Security checks considerably higher than they are now. If nothing is done, a worker retiring in 2055 would receive first-year benefits totaling $16,700 in today's dollars, considerably less than the promised $21,600 but more than today, according to the Congressional Budget Office.
"The Social Security tax collects 12.3 percent of the wages each year. That money is going to be available to pay benefits," said Bernard Wasow, a senior fellow and economist at the Century Foundation, a research organization that opposes the president's plan. "That's not bankrupt."
Critics of Bush's plan also question whether the president has an election mandate to make what would be the biggest change in Social Security since it was established more than six decades ago.
Although Bush touted the benefits of private accounts, he did not talk about the significant costs -- an estimated $2 trillion -- of establishing them. He also did not mention the steep cuts in guaranteed benefits that experts say are sure to accompany his plan. The White House has pointed out that Social Security is projected to start paying out more in benefits than it collects in taxes in 2018. Although it can then dip into its substantial reserves, the system can pay promised benefits only until 2042.
To bridge the gap, White House officials have focused on a plan that would change how future benefits are calculated by tying them to price changes rather than wage changes, which would most likely result in significant cuts in future promised benefits, because wages generally grow faster than inflation.
"Who campaigned on price indexing? Who campaigned on cutting future benefits? They campaigned on personal accounts. It's a bait-and-switch to say now we're gonna go to [benefit cuts] price indexing," said Peter Ferrara, a conservative Social Security analyst opposing administration plans to cut guaranteed benefits.
"Social Security faces a challenge, not a crisis," said Rep. Sander M. Levin (D-Mich.). "Diverting over $2 trillion from the Social Security trust fund to private accounts, as suggested by the president, does not address Social Security's challenge 40 to 50 years from now. Indeed, it would make it far worse."
At yesterday's event, Bush solicited anecdotes from five people brought in from across the country to voice support for private accounts. Scott Ballard, a married father of two from Wenatchee, Wash., said that private accounts would get more young people interested in preparing for their retirements. "Once they start seeing something on paper, saying, 'Oh, that's mine,' and it's been in there a few years and they start to see it build, they become more interested in it," he said.
Robert McFadden, a pharmaceutical company executive from New Jersey, described watching his father, a school principal, suddenly die at 57 of a heart attack. After his father spent more than 30 years paying into the Social Security system, McFadden said, his family had nothing to show for it because the family did not qualify for survivor benefits. "When he passed, his Social Security passed with him," said McFadden, who is African American.
Picking up on McFadden's point, Bush argued that his Social Security plan would be a boon to black men, whose life expectancy is about six years shorter than that of white men. Under his plan, people could pass the private accounts from one generation to the next. "African American males die sooner than other males do, which means the system is inherently unfair to a certain group of people," Bush said. "And that needs to be fixed."
Staff writer Jonathan Weisman contributed to this report.