Newspaper article The Christian Science Monitor

How Privatization Will Affect Pocketbooks - and Politics

Newspaper article The Christian Science Monitor

How Privatization Will Affect Pocketbooks - and Politics

Article excerpt

Sometime this week, George W. Bush will outline a radical revamp of the one federal program that Americans almost universally revere.

Treading where no one in his place has gone before, his pitch could split voters along generational lines - and make or break his candidacy for president.

His target is Social Security, and while other politicians have proposed changes, Governor Bush will be the first major-party nominee to risk a White House bid on the issue.

His success may hinge on this question: Will Americans fixate more on the plan's risks -or its potential rewards?

Bush will propose a plan that lets individuals put a portion of their Social Security tax into a personal retirement account, which they could then invest in the stock market - an idea that would have been thought radical just a few years ago.

The stakes - both for the presidential election and the nation's fiscal health in the decades to come - are massive. Social Security accounts for a quarter of federal expenditures now, a figure that is growing.

And after political sniping over the issue ignited last week between Bush and Vice President Al Gore, observers expect Social Security to be a defining issue of the fall's campaign for the first time in decades. Voters are left to decide whether partial privatization of the system is an idea whose time has come.

"It's almost guaranteed to be a major issue," says Bush pollster Fred Steeper.

Extent of the 'crisis'

As millions of baby boomers start to retire, and thus receive payments rather than paying Social Security taxes, it will create a strain on the system. The Clinton administration predicts that the Social Security Trust Fund will run out of money in 2037.

Keeping the system solvent is the underlying goal of both candidates' reform plans.

Others doubt the severity of the crisis, arguing that forecasts of events decades in the future are unlikely to be correct.

"There may be some basis for long-term concern," says Dean Baker of the Economic Policy Institute here. "But we're really shooting in the dark because we don't know what the world looks like 30 years from now."

Bush's blueprint

Details won't be announced until later this week. But aides say that under the Bush plan a worker would have the option of dedicating some portion of his or her 12.4 percent Social Security tax - probably 2 to 2.5 percent of income - to a self-managed retirement account instead of to the Social Security Trust Fund.

The benefit: Unlike the existing system, the income in the retirement account could pay higher returns, due to the relatively large returns historically generated by stock investments.

Moreover, those who favor privatization see it as a way to fix long-term money problems with Social Security. Personal accounts, they hope, will bolster the system by lowering the government's financial responsibility.

"It not only helps put the program on a course toward long-term solvency," says Michael Tanner of the Cato Institute's Project on Social Security Privatization. "But it also will help raise the rate of return to young workers and provide them with higher retirement benefits."

Risks of privatizing

For the individual retiree, the potential for high returns in the stock market comes at the risk that the account could lose money. (Although in some plans, the government would mitigate that risk by guaranteeing a certain level of benefits. …

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