Privatization by any other name . . .

October 16, 2002
By Amy McConnell

On the stump and in ads, U.S. Rep. John E. Sununu tells voters that the Social Security program is a "sacred trust" and that he will fight any "risky privatization scheme" that endangers its benefits.

He does support allowing workers to divert a small portion of their payroll taxes from Social Security to personal investment accounts, Sununu says. But Sununu also co-sponsored legislation - and now says he supports a similar but more comprehensive bill - that not only allowed but required diverting surplus money from Social Security to private accounts for every worker under age 55.

That proposal, which until recently was called "privatization" by opponents and supporters alike, exposes future retirees' benefits to the risks of an uncertain stock market, according to Roger Hickey, co-director of the Washington, D.C.-based Campaign for America's Future.

"The philosophical difference between the two sides is how much of a guarantee there should be," said Hickey, whose group has been running a TV ad called "Peek-A-Boo" in which a disguised Sununu accepts campaign contributions from Wall Street donors. "We think the guarantee is more important than the opportunity for some people to strike it rich."

In Congress and in political campaigns around the country, candidates, elected officials and voters are discussing how to strengthen the soon-to-be insolvent Social Security system. The system has provided a safety net for generations of workers; within the next three decades, however, retiring baby boomers are expected to exhaust the fund, which is being supported by a relatively smaller number of workers.

As an alternative, some lawmakers - and now, President Bush - have suggested letting workers set aside a portion of their payroll taxes in private, and hopefully interest-bearing, accounts of their choosing.

Sununu says he supports personal accounts, not privatization.

But privatization is just verbal shorthand for creating the personal accounts that Sununu, Bush and many other Republicans favor, said Michael Tanner of the pro-privatization Cato Institute. Until about four years ago, lawmakers and analysts both for and against the concept referred to it as privatization, he said.

But then critics began using the term to suggest Social Security would be eliminated if private accounts were created, Tanner said. Recent corporate scandals have only given those critics - who are mostly Democrats - more opportunity to muddy the term, he said.

"They've taken over the shorthand and tried to tie it in with the corruption on Wall Street and big business and not caring about the average person and the government's abandonment of its responsibilities," said Tanner, director of what used to be called the institute's Project on Social Security Privatization. "They have been able to use it as shorthand for all that."

In May, the Cato Institute changed the name of Tanner's program to the Project for Social Security Choice.

But diverting younger workers' payroll taxes from the Social Security system to private accounts, proponents say, would let future generations draw part of their retirement from the returns on those investment accounts. Workers, Sununu said yesterday, could choose to invest among three mutual funds; one would consist primarily of bonds, one would be mixed between stocks and bonds, and one would consist of a range of stocks.

"You'll have a stronger system in the long run," Sununu said.

The cost to the Social Security system of setting aside that money while continuing to pay current and near-term retirees the same level of benefits will be about $1 trillion over 10 years, Sununu acknowledged.

How will the government pay for that?

"We control the growth in government, which I have a strong record of doing,' " Sununu said. "We work to keep the economy strong, to keep revenues strong . . . and sit down and talk thoughtfully about an important issue like this instead of using scare tactics, which is all Jeanne Shaheen has to offer."

And if the economy lingers in recession, or worsens, and revenues fall below projections? Then lawmakers will face the same choices - cutting costs or raising taxes - in the Social Security program as in the rest of the budget, he said.

"That's the same question we have to deal with for any spending proposal," Sununu said. "We have to make choices constantly about spending."

In 1999, Sununu and 38 other members of Congress supported legislation called the Personal Lockbox Act of 2000. The proposal, Sununu said, would have set aside the Social Security surplus to protect it from being spent on other government programs.

Instead, that money, placed in obligatory investment accounts for every worker in the country under the age of 55, would have been spent on mutual funds. And those workers' future Social Security benefits would have been cut by the diverted amount plus the amount of interest that money would have earned from U.S. Treasury bonds, according to the proposal.

Workers who earned more than that rate of return would get better benefits than under the Social Security system alone, according to Hickey. But some people would do worse with their private investments and see their benefits cut, he said.

"Most people would do a terrible job of investing their accounts," Hickey said. "It's not simply that it's risky - it's almost built in that low-income people would not do as well under this system."

But even though he supported obligatory accounts in 1999 and now supports the expanded privatization proposal sponsored by U.S. Senator Judd Gregg, Sununu said yesterday, "any plan we consider moving forward that considers retirement accounts should make them optional."