Tanner: The Demagoguery Begins

June 10, 2002

Michael Tanner, director of Cato's Project on Social Security Choice, wrote the following op-ed distributed by Knight Ridder:

"No campaign season would be complete without a certain amount of charge and counter-charge over Social Security. Few issues have such a clear track record of being able to move voters and influence elections. Unfortunately, few issues have also been as prone to misrepresentation and demagoguery. And this year, with control of both the House and Senate hanging on a handful of close elections, the demagoguery has started earlier and been more outrageous than usual. On this vital issue, Americans deserve better."

"Recently an errant congressional e-mail revealed that opponents of Social Security reform were preparing to launch attacks designed to "scare seniors" about proposals to allow workers to invest a portion of their payroll taxes in individual accounts. The e-mail noted that the attacks were "Over the top" and "not entirely factually accurate," But that didn't seem to deter them."

"It would be one thing if this were an isolated incident—one congressional staffer going a bit too far. Unfortunately, there has been a sustained campaign to frighten older voters. For example, Rep. Robert Matsui (D-Calif.) warns that individual accounts are part of "a secret plan to cut benefits." Likewise, House Minority Leader Richard Gephardt (D-Mo.) claims Republicans have a plan to "privatize Social Security and cut benefits." Rep. Nita Lowry (D-NY), chairwoman of the Democratic Congressional Campaign Committee joins in, saying that individual accounts "will cut benefits for millions of Americans who rely on Social Security."

"Well, everyone is entitled to his own opinion. But everyone is not entitled to his own facts. And when it comes to Social Security the facts are as follows: There have been numerous proposals for creating privately invested, individually owned accounts as part of Social Security reform. This includes three scenarios suggested by President Bush's bipartisan Commission to Strengthen Social Security, legislative proposals introduced in Congress, and plans developed by various think tanks. None would cut benefits for current Social Security recipients or those close to retirement. That's right. Every current retiree will continue to receive every dime in benefits they do today."

"As for future beneficiaries, the combination of money saved in individual accounts and benefits continuing under the Social Security system would provide benefits that are generally higher than those promised by Social Security and far higher than those that Social Security can actually pay."

"It is important to remember that Social Security is facing a massive and unavoidable funding shortfall. Within 15 years the system will be running a deficit, spending more on benefits than the program brings in through tax revenues. At that point, the system will have to tap the Social Security "Trust Fund." But the IOUs in the Trust Fund are nothing more than claims against general tax revenues. Overall, Social Security is under-funded by more than $25 trillion over the next 75 years."

"That means, absent massive taxes increases or some other fundamental reform, the current level of promised benefits cannot be paid. Critics of individual accounts, therefore, have an obligation to explain how they would reform the system or where they would find the money to pay those promised benefits."

"It is equally irresponsible for critics of individual accounts to compare those accounts with Enron. Every major proposal for individual accounts would require that funds be invested in broadly diversified portfolios of stock, corporate bonds, and government bonds. The collapse of any single stock would have relatively little effect on their portfolios."

"As to market risk as a whole: Certainly stock prices can go down as well as up. However, what really counts is not short-term market volatility but long-term investment trends. For more than 75 years U.S. markets have averaged an annual return of roughly 7 percent above inflation. While young workers would be investing for 30, 40, or more years, there has never been even a 20-year period during which U.S. equity markets lost money. Compare that with the dismal return from Social Security."

"Nor would individual accounts "privatize" Social Security, at least not in the sense that critics use the term. The government would still provide a safety net, one that is even stronger and better targeted on the poor than the one today. Government would regulate investments and protect individuals from fraud. No one would be left to fend for himself. What individual accounts do is to give workers a choice and greater control over their retirement future."

"Social Security affects the lives of nearly every American. That means the debate over reforming it is far too important for political demagoguery. The American people deserve a fair and honest debate. I'm betting they will demand one."

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