In his proposal for Social Security, presidential candidate George Bush would allow a portion of each worker's payroll taxes to be placed in a personal account.

If adopted, the core retirement income for working families would be put at risk in an investment program where benefits are determined by the luck and wisdom of their investment choices and the ups and downs of financial markets.

Over the past 10 years, investors have fallen into the mass delusion that stocks are safe. Apparently, only old folks remember the 17 years, 1966 to 1982, when the market zigzagged sideways, with no-zip, zero, nada-net advance in the nation's leading stocks.

The delusion of holding stocks for the long term just doesn't work the way you think.

The New York investment firm Sanford C. Bernstein identified the 34 leading growth stocks of 1980. Intel is the only one that remains a winner today, according to Alan Feld, managing director of Bernstein's family-wealth group. Of the rest, he explains, 22 aren't trading anymore (merged, bought, gone) while the prices of the other 11 have trailed the S&P 500 stock average.

In a privatized system, Social Security's income guarantee would be lost. Social Security would no longer serve as a source of ensured income for the elderly, especially lower-income workers, women, and minorities.

Creating voluntary personal accounts within Social Security would change the fundamental character of the program and potentially carve a path toward its eventual demise.

Of course, no one gets rich on their Social Security benefits, but most everyone gets by. In 1998, the average benefit a retired worker received was about $725 per month.

Under the Bush proposal, some people would do very well but others would fare poorly. People with more experience with investments, those who are willing to devote significant time and effort to monitor the performance of their portfolio, and those able to hire financial advisors will probably make better investment decisions than others.

People with less time, talent, money or inclination to manage their personal accounts will likely fare worse.

And even in recent years when the stock market, on average, rose substantially, some investors still lost money.

Social Security's inflation-adjusted benefits continue for as long as a retiree lives (and continue throughout the lifetime of a surviving spouse as well).

But income from these personal accounts or any investment is not guaranteed to last that long.

Since no one knows how long they are going to live, workers at retirement will need to convert their personal accounts into an annuity that will guarantee them a monthly benefit throughout their remaining years.

Few working families have had experience with annuities. Annuities are costly. Insurance companies typically charge 4-6% of the total value of the account to convert an investment account into an annuity.

Including the annual administrative fees, a minimum of 35% of a worker's total account will be lost before the first retirement check is issued.

Moreover, unlike Social Security benefits, annuity disbursements generally are not adjusted for inflation and decline in value as prices rise. In sum, a system of personal accounts will provide worse benefits at a higher cost to millions of workers.

But the biggest myth in this debate is the notion that Social Security is going broke or that benefits will not be there for younger workers. Social Security can pay all benefits until 2037 and, without any changes, have sufficient funds to pay more than two-thirds of benefits between 2037 and 2075.

We may or may not have a funding shortfall after 2037. This date has already been extended several times in the past two years.

If there is a funding shortfall, we only need minor adjustments in the program, not a fundamental transformation.

When we look at the total picture, the promises of personal accounts simply do not add up. Social security is too important a source of income for America's families to be left to the uncertainties in the stock market.

A better solution exists that preserves the social insurance system and offers the promise of a much safer and sound future for America's retirement program.

As financial reporter Jan Quinn Bryant said recently, "One of these days, our obsession with stocks is going to pass and we'll look back in wonder at the way we were." The same will be true about proposals to invest your Social Security in the stock market. We will wonder at the mistake we almost made.

@ Sub-Heading = Getting Politicians to 'Sign the Pledge' on Social Security and Medicare

@ Sub-Heading = Excerpted from UAW's Solidarity Magazine, July/August 2000

Social Security and Medicare-America's most successful government programs- are under new attack from the political shredding crew.

A large number of candidates for the House and Senate have adopted Wall Street's idea of privatizing Social Security and turning Medicare into a voucher.

But it's not too late to stop them.

As he campaigns for the U.S. presidency, Republican presidential candidate George W. Bush has endorsed plans to use some of the taxes that support Social Security to fund private accounts.

Bush says he would only divert a small amount from current taxes and won't cut benefits for those at or near retirement.

He also wants to change Medicare from a system that guarantees a certain level of care into one which would provide only whatever we could buy from private HMOs or insurance companies with a voucher.

Privatizers like Bush have been trying to undermine public support for the programs by falsely declaring them bankrupt. But now they say we can have a big tax cut and can pay for private accounts without jeopardizing Social Security and Medicare benefits for current retirees and current workers. But it just can't be done.

Because Social Security is a pay-as-you-go system, if payroll taxes are diverted to private accounts, the system cannot pay promised benefits. Diverting just two percent out of the 6.2 percent employee-paid Social Security taxes into private accounts would reduce by 32 percent the funds currently paid by workers to support benefits for current retirees.

Transition costs involved in privatization also would be enormous. The Center for Budget and Policy Priorities estimates that a two-percent diversion would cost $900 billion in just the first 10 years.

Using some of the current surplus to pay down the debt now, instead of giving tax cuts to the rich, would reduce future financial burdens and leave more available to assure continuing financial solvency in those later years.

But since Bush and the other privatizers also want a large tax cut-and not tax increases-they leave no way to address the projected long term shortfall except big reductions in benefits.

That is why virtually every honest privatization bill in Congress reduces guaranteed benefits, reduces Social Security's inflation protections, and raises the retirement age for current workers to age 70 or older.

But Bush and many other privatizers want to avoid talking about these little details until after the November election.

That's why the UAW and many other unions have gotten behind a nationwide campaign to get presidential and congressional candidates to sign a pledge to protect Social Security and Medicare and do it before the election.

Among the labor leaders and prominent citizens who are leading the sign-the-pledge effort are Linda Chavez-Thompson, AFL-CIO vice president; George Kourpias, former president of the International Association of Machinists; actor Paul Newman; former Labor Secretary Robert Reich; and the Rev. Jesse Jackson.

Roger Hickey, co-director of the Campaign for America's Future, is spokesperson for the sign-the-pledge movement.

He warns that close to half of the members of the current Congress have endorsed proposals to privatize Social Security, but many, on the advice of their pollsters, are hiding their views from the voters.

While most of the initiative for privatization comes from the Republican leadership, a handful of Democrats including two retiring senators-Patrick Moynihan of New York and Bob Kerrey of Nebraska-have joined the privatizers.

In state after state, local coalitions are asking candidates for Congress to sign the pledge.

In Michigan, Republican Senator Spencer Abraham has not signed the pledge, but his Democratic challenger Debbie Stabenow has.

In Pennsylvania, Republican Senator Rick Santorum has not signed the pledge though his Democratic rival Ron Klink has.

In mid-May after Bush laid out his plan to privatize part of Social Security, AFL-CIO President John Sweeney, said: "The costs of privatization are unavoidably enormous."

"Diverting any part of the system's resources to create individual investment accounts will fundamentally undermine the foundation that Social Security provides for our retirement and disability insurance."

Bush has ruled out raising payroll taxes but has said he would consider increasing the retirement age-already set to go to 67.

And when asked whether he envisions a system in which future beneficiaries would receive no less than they would under the current system, Bush said: "Maybe, maybe not." (Dallas Morning News, 5-15-00.)

Edith Rasell and Christian Weller, analysts with the Economic Policy Institute, point out that a privatized Social Security would no longer be a social program providing a guarantee of inflation-proof, lifelong retirement income.

Instead they emphasize we would all be put at risk in a system that creates winners and many losers depending on conditions we can't control: the performance of the stock market, luck, investment savvy, or the timing of retirement (whether the market was up or down).

Rasell and Weller also say the most dangerous aspect of the Bush plan may be its voluntary nature which may lead to high income Americans pulling out of the system, creating an earlier and larger shortfall than currently projected.

Gore, it turns out, strongly opposes the privatization of Social Security and the cutbacks that privatization entails.

He told a recent labor convention: "It is wrong to advance plans that could force an increase in the retirement age. After a lifetime of hard work, you shouldn't be asked to work even harder."

Gore supports strengthening guaranteed benefits for Social Security, protecting cost-of-living increases, and opposes raising the retirement age to 70.

Gore's plan to shore up Social Security includes using today's budget surpluses to pay down the national debt and use the interest saved from debt reduction to boost the Social Security Trust Fund.

Gore would raise benefits for widows and eliminate the motherhood penalty that reduces benefits for women who take time off from work to raise their family.

Gore also has a plan to help low and moderate income families set up individual accounts without touching money needed to pay Social Security benefits.

Gore opposes turning Medicare into a voucher program-and he supports a Medicare prescription drug benefit for all Medicare beneficiaries-not just the poorest of the poor.

10 EXCELLENT REASONS
To Strengthen Social Security and Oppose Privatization

1. Privatization would require major cuts in benefits.

Diverting two percent from Social Security taxes to fund individual accounts would cost $900 billion in the first 10 years says the Center for Budget and Policy Priorities. Privatizers say they won't raise taxes or cut benefits for current retirees, but they insist on using the budget surplus for huge tax cuts aimed at the wealthy. The remaining options are big cuts in benefits for future retirees, cutting cost-of-living adjustments, and increasing the retirement age to 70 and older.

2. Privatization can never match Social Security's guarantees of economic security for all.

Social Security is a critical safety net. For typical older Americans, it provides 64 percent of their income. Without Social Security, 14 million more seniors, people with disabilities, surviving spouses and children would be living in poverty. Lower wage earners and women, who tend to live longer, would be especially hard hit.

3. Social Security provides lifelong retirement income.

Replacing even a portion of Social Security with individual accounts means we might outlive our investments. If that happens, we all face becoming impoverished and totally dependent on our children.

4. Individual accounts threaten other critical insurance protections.

Social Security taxes provide critical disability insurance, survivors' benefits for widows and widowers, and survivors' benefits for spouses and children of deceased younger workers.

5. Social Security's protections against inflation would be jeopardized.

Social Security protects disabled and retired persons against inflation by annual cost-of-living increases. There is no guarantee that earnings on individual accounts would keep up with inflation-or would not be lost altogether.

6. Privatization risks a massive government bailout.

If the economy slows or the market takes a downturn when boomers retire, the whole individual account sytem could come crashing down. Then the pressure for a huge government bailout to make up lost benefits for workers would be enormous.

7. Benefit cuts for young workers would be huge.

Investing one-sixth of payroll taxes into private accounts would require a cut in benefits of at least 20 percent. Since George W. Bush has said he won't cut current retiree benefits but would consider raising the retirement age, younger workers have the most to lose under Bush's plan. Those under 30 could find their guaranteed benefits cut by about 54 percent.

8. A pay-as-you-go system cannot go broke.

Social Security is not going bankrupt. Because it is a pay-as-you-go system, it can never go bankrupt as long as Americans are paying taxes into the system. For over six decades, Social Security has never missed a payment, while thousands have lost their life savings in unwise or unlucky investments.

9. Dire predictions are based on pessimistic assumptions.

Privatizers often use a sunny set of economic projections that show a strong economy creating a booming stock market but then switch to pessimistic projections of low growth economy when looking at Social Security.

10. There are better fixes.

There is no need to risk radical changes. Congress can strengthen Social Security by using the budget surplus. Likewise, paring down the federal debt would free up money that would otherwise have been paid as interest to instead fund Social Security and Medicare.