The Social Security Flim-Flam

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Presentation Only A Fool Could Love
Paul Vitello
February 3, 2005

Boys and girls, we won't be talking about the plan to "privatize" Social Security anymore. The word privatize might scare you.

President George W. Bush's Social Security proposal - which would shift the source of about half of every citizen's Social Security income out of a guaranteed government entitlement system and into an uninsured stock market portfolio - is now a plan to "personalize" your retirement benefits.

"Personalization suggests increased personal ownership and control," to quote from a talking points memo issued last month by the House and Senate Republican Conferences.

The memo, signed by Senate Conference Chairman Rick Santorum (R-Pa.) and House Conference Chairman Deborah Pryce (R-Ohio) was designed to help members keep on message with the president, who launched a campaign swing today to begin selling his Social Security overhaul plan. The memo was leaked and has been widely quoted in the press. (If you want to see it for yourself, boot up and punch in: talkingpointsmemo.com/docs/gop.socsec.strategy.memo.pdf)

"Privatization," on the other hand, says the memo, "connotes the total corporate takeover of Social Security ... and turns off listeners, who are very concerned about corporate wrongdoing."

"Talk in simple language," the conference chairmen suggest. "Your audience doesn't understand financial jargon ... Your audience doesn't know how trillions and billions differ. They know these numbers are large but not how large, nor how many billions make a trillion. Boil numbers down to 'your family's share.'"

If it takes a village to raise a child, it apparently takes a village idiot to meet the expectations that Republican conference members have about us.

To them, apparently, we are easily confused, easily frightened and - this is the best part - easily swayed if only the right words can be brought to bear.

The conference memo is a political person's Emily Post of right words and wrong words to use in the coming sales extravaganza for Bush's plan. The fact that Bush's plan takes from those with the least, wage earners, and gives to those with the most - stock market fund managers such as Merrill Lynch and the others who are the only ones guaranteed under this plan to profit - is never addressed in the memo.

Its only concern is what words the idiots will comprehend. For example, it says that conferees should not say that personalized accounts will help Americans "build wealth."

"To most Americans, building wealth sounds unattainable - especially in the context of Social Security," the chairmen write. "But on the other hand, putting aside a nest egg sounds like common sense.

"Calling the trust fund meaningless will raise hackles," the memo says in another example. The trust fund it refers to is the pool of Social Security taxes paid by American workers - some of which is used to pay current retirees' benefits and the rest of which is borrowed by the government to pay for other obligations. "Taxpayers believe it is the source of monthly checks paid out by Social Security. But everyone agrees that it is an empty promise."

So to review this much, class: They won't say privatize, which might spook us. The word is personalize. They won't confuse us by assuming we know how many billions makes a trillion. They'll talk about our family's share; maybe evoke that old standby of economic hackery, the kitchen table we all sit around, pencils at the tips of our tongues. They won't say we can build wealth under the president's plan. They'll say we can put aside a nest egg because a nest egg - quote, sounds like common sense, unquote.

And to avoid raising our hackles, they'll be careful not to call the trust fund - those trillions of dollars we've been dutifully paying over the years in regular deductions from our paychecks - meaningless.

They'll just call all that money a, quote, empty promise, unquote.

And here they thought the word privatize would scare us.

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Social Security: Don't Be Fooled By Bush Team
Saul Friedman
January 29, 2005

Some readers complained a few weeks ago when I suggested that the kind of lies that misled us into war may be used in the campaign to privatize Social Security. Don't confuse the issues, they said.

But as this administration demonstrated after 9/11, in its effort to get congressional approval to go to war against Iraq and in its re-election campaign, you can fool enough people enough of the time with the use of fear. And in the struggle over the future of Social Security, the administration's weapon of mass deception is the cry of imminent crisis.

The Washington Post reported that President George W. Bush "has had great success in his first term by defining crises that demanded decisive responses," including his tax cuts and the war. "Now he's returning to the same tactic ... warning of the need for urgent action on his Social Security plan ... for a system even the most pessimistic observers say will take in more taxes than it pays out in benefits well into the next decade."

Here's Bush speaking on Jan. 11 to a hand-picked audience: "If you're 20 years old ... 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."

What the press did not know until later is that the participants had been flown in by a right-wing group, FreedomWorks, dedicated to privatizing Social Security.

But the president should have known that Social Security, according to the trustees, has $1.5 trillion in Treasury bonds held in trust and will be able to pay full benefits at least through 2042 and more probably 2052, according to the Congressional Budget Office.

And as virtually every objective analysis has concluded, Congress could enact a combination of relatively small adjustments, as it has done many times in the past, to fix Social Security into the next century. But fixing Social Security is not on the president's agenda. He means to replace it with personal retirement (investment) accounts, with the help of a manufactured crisis.

In a memo to supporters, which was leaked to reporters, White House political strategist Peter Wehner wrote that to persuade Americans and the Congress on the need for personal accounts, the administration will seek "to establish an important premise: The current system is headed for an iceberg.... We need to establish in the public mind a key fiscal fact: Right now we're on an unsustainable course. That reality needs to be seared into the public consciousness; it's the precondition to authentic reform."

Wehner's memo was sent to a standing army of conservative and right-wing groups, many of whose leaders aided in the Bush campaigns for his tax cuts, his efforts to pull back on environmental regulations and his re-election. They include the Heritage Foundation, the American Enterprise Institute, the Cato Institute, and the Americans for Tax Reform, run by the president's anti-tax adviser Grover Norquist, who would end most federal programs and says Social Security needs reform "not because it's going broke, but because it's a lousy program."

The conservative, anti-government, anti-regulation, anti-tax network, financed by a group of right-wing oil millionaires, prominent in its repeated assaults on the Clinton administration, is to be joined by business groups such as the National Association of Manufacturers (its front is the Alliance for Worker Retirement Security), the U.S. Chamber of Commerce and the securities industry, which stands to make billions managing the personal accounts.

White House strategist Karl Rove is expected to coordinate the effort. And Stephen Moore, head of the anti-tax Club for Growth, which has reserved its harshest attacks for moderate Republicans, says his group is raising $15 million. And he estimated that Bush's allies will spend $50 million to $100 million on the campaign to turn Social Security into millions of investment accounts. While Vice President Dick Cheney and Treasury Secretary John Snow are speaking on behalf of the White House's public effort, the administration's allies are taking to the telephones and the Internet in a more covert campaign.

Progress for America was founded in 2001 by a political director of the 2000 Bush-Cheney campaign. It raised $38 million for the president's re-election. Ken Adelman, who identified himself as its chairman, became the president's campaign director last year.

Callers from Progress for America begin their calls as follows: "As everyone knows, Social Security is running out of money." Another pitch says private accounts continue the Franklin Roosevelt legacy.

Potentially more influential is FreedomWorks, established last summer for the president's campaign, through a merger of prominent conservative organizations, Citizens for a Sound Economy and Empower America. Its co-chairmen are C. Boyden Gray, who was White House counsel to the elder President Bush; Jack Kemp, housing secretary in the Reagan administration; and former House Republican leader Dick Armey. The group seeks to "mobilize ordinary Americans to fight for less government, lower taxes and more freedom."

The most prominent organizations defending Social Security against privatization are the liberal National Committee to Preserve Social Security and Medicare, the union-backed Alliance of Retired Americans and AARP.

Echoing an argument made by Bush at the White House, Armey charged that AARP's employees (and federal workers) have 401(k)s and don't complain about the risk. But as Armey and the president should know, their personal accounts have lost value - and they still have Social Security.

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Investment Pros: Don’t Touch Social Security
Saul Friedman
February 12, 2005

Put aside, for the moment, the well-worn political, economic and academic arguments on the future of Social Security and ask your financial adviser this simple question: Is it a good idea to trade in the guaranteed benefit of Social Security for a private investment account?

It's a legitimate question, for even if your adviser is also a stockbroker, his or her first responsibility is to preserve (if not increase) the value of your retirement assets, including present or future Social Security income. That responsibility also rests with an accountant or bank trust officer, both paid to look after your finances.

While current retirees may not be immediately affected by proposals to privatize Social Security, any reputable financial planner/adviser ought to be able to explain the possible consequences for your future retirement if your defined benefit plan (Social Security) is converted to a defined contribution plan (a private investment account).

The idea of asking a financial adviser to weigh in on the issue came to me when my own broker, a conservative fellow who has become a vice president of his large, full-service brokerage, read my Jan. 8 cover story, setting the stage for the battle over Social Security. I had figured him for a supporter of privatization, because his company stands to make a bundle on commissions for private accounts.

But Bill has been in the trenches, counseling and reassuring investors, many of them retirees whose holdings lost a great deal of value when the stock market tumbled a few years ago. And I quoted him a couple of years ago, when he warned investors that the days of double-digit returns were gone.

Now, he says, be grateful for any gains in an uncertain economy haunted by huge deficits.

"Personally, I don't favor privatized accounts," Bill told me via e-mail. "I think Social Security should be a guaranteed benefit no matter what happens in the stock market." Earlier he had praised Social Security's benefits because they are adjusted for inflation and progressive, meaning that the lower a worker's final salary, the higher the percentage that benefits replace.

But recognizing that Social Security could run into the red in 40 years, as the system's trustees report, he added, "my own favorite remedy is to delay the age at which benefits pay out." For Bill and many other conservative financial advisers, a "guaranteed" return from Social Security - quite literally, money in the bank - is a better deal than anything speculative. And despite promised returns from privatization, nothing in the stock market is guaranteed. Stocks are sold with the legally required caveat that they could decline in value.

As you know, President George W. Bush's plan to privatize part of Social Security would begin with the creation of millions of individual retirement savings accounts like IRAs or 401(k)s. So I asked an acknowledged guru of these savings plans, Rockville Centre CPA Ed Slott, what he thought.

His reply was practical.

"I am against them [private accounts as part of Social Security]," he wrote. "While everyone wants to think they can invest better than the government, all of these people screaming to keep government out of Social Security and invest on their own will be the first on line to cry to the government to bail them out when they lose their money through their own investing mistakes or fraud. ... Having this much money up for grabs on Wall Street is scary. ... Private accounts seem to have all the makings of a breeding ground for massive fraud, followed by a government bailout that would make the savings and loan bailout look like a mere warm-up....

"Social Security is the only system that guarantees a monthly check, and that is something that I believe is sacred and should not be tampered with.... Who will protect the people that will lose their money? It sounds great to take control of your money, and I am all for that through funding your own IRA and other retirement accounts, but not at the expense of Social Security."

Slott has just published a book, "Parlay Your IRA Into a Family Fortune" (Viking, $24.95), on how to build and protect your retirement accounts to pass them on to your heirs. As the book and his newsletter, IRA Advisor, point out, too many investors prematurely dig into their savings accounts for family emergencies, or to pay the orthodontist, and thus drain their retirement savings. Social Security can't be spent prematurely.

In an extensive poll of Americans under retirement age, AARP found that "the more Americans learn about diverting Social Security taxes into private investment accounts, the less they like the idea." Nearly half initially supported the concept of diverting some taxes, but their support declined sharply when they learned of the consequences, including lower Social Security benefits and possible losses in private accounts.

It is true that AARP sells retirement savings plans and sponsors a 401(k) plan for its staff. Most federal employees and members of Congress also have such private thrift-savings plans. And nothing bars any of us from creating and funding our own tax-deferred retirement accounts. But it's just good sense that you don't invest (or gamble) what you cannot afford to lose.

No matter what happens to these plans (and virtually all have lost value in the past few years), Social Security will remain a guaranteed safe harbor for at least 50 years. And it can easily be fixed to last into the next century.

In 1978, as a losing congressional candidate, George W. Bush predicted Social Security would be bankrupt in 10 years unless it was privatized. Although he persists in such false predictions, he is president now and has the fiduciary responsibility to preserve every American's stake in Social Security.