Reading Between the Lies: Report #6
By: Hans Riemer, Senior Policy Analyst
Date: 8/27/02 | PDF

NRCC, Claiming to Oppose Privatization, Urges Candidate to Defend Private Accounts – by Lying about Harm to Social Security

On August 26, the National Republican Campaign Committee released a memo accusing news reporters of being "complicit in the Democratic strategy" and "taking sides in the midterm elections" if they use the word "privatization" to describe "personal accounts.”

As the Campaign for America’s Future Truth Squad has pointed out before, the GOP’s charge is preposterous. The word privatization or "partial privatization" fairly describes a policy that shifts risk (and its advocates might say, control) from the government to individuals. That is why both sides in the debate and respected experts and journalists have used the phrase for decades.

Nobody should be fooled: the debate is not about a word, it is about a policy of diverting Social Security taxes to fund private accounts. This is a policy embraced by President Bush and most Republicans. In advising GOP candidates not to use the word privatization – and attempting to intimidate reporters, the NRCC is clearly embracing and defending the policy of carving out private accounts from Social Security. And in so doing, they are trying to pretend that this policy will not harm Social Security.

In pretending to oppose privatization, the GOP memo attempts a greater deception.

According to the memo, “Personal accounts are a means by which a portion of an individual’s contributions would be saved within the Social Security system.” [Emphasis added]

This subtle phrasing is a new attempt by the GOP to deny that using Social Security money for private investments would divert funds away from guaranteed Social Security benefits.

Diverting funds away from Social Security in order to fund personal investments is what necessitates cuts in Social Security benefits. As the Campaign for America’s Future has repeatedly said, no matter what you call it, diverting Social Security funds into stock investments will cut guaranteed benefits and increase risk.

In fact, partial privatization creates an immediate financing crisis for Social Security that did not previously exist, jeopardizing our promise to all Americans, including current retirees and older workers. When Social Security benefits have been cut in the past (e.g., 1977 and 1983), it has been in response to an immediate shortfall in funds.

If you wonder whether partial-privatization would really create an immediate financing crisis for the government, consider that Larry Lindsey, the White House economic advisor, recently said that the government should borrow the trillions of dollars needed in order to implement the Bush Commission plans for partial-privatization of Social Security. [Washington Times, 08/18/02]

In December 2001, President Bush’s handpicked Social Security Commission proposed three plans that would divert Social Security money into private investments. These plans, as the following chart explains, would divert more than $1.5 trillion away from Social Security over the first ten years.

AMOUNT OF MONEY DIVERTED FROM SOCIAL SECURITY OVER 10 YEARS UNDER BUSH COMMISSION PLANS (Billions of Dollars. Estimates assume 100% participation in accounts. Totals include value of private accounts and interest loss to Trust Fund)

YEAR Plan 1 PLAN 2 PLAN 3
2003 0 0 0 2004 -85.7 -101.9 -84.2
2005 -97.2 -115.9 -95.6
2006 -109.9 -131.3 -107.6
2007 -122.6 -146.9 -120.5
2008 -137.0 -163.8 -134.7
2009 -152.4 -182.0 -149.9
2010 -169.1 -201.7 -166.3
2011 -187.2 -223.1 -183.5
2012 -206.1 -246.9 -202.7
2013 -227.3 -272.0 -223.6
2004-2013 $-1494.5 $-1785.5 $-1468.4

Source: SSA Chief Actuary Memorandum, “Estimates of Financial Effects for Three Models Developed by the President’s Commission”

While supporters of privatization seek to assure current retirees and older workers that their benefits will not be affected even as a large portion of the Trust Fund is diverted into private investments, there is no money in the budget to keep this promise. The immediate financing crisis that would result could precipitate benefit cuts.

As economist Paul Krugman recently wrote: “Social Security as we know it is a system in which each generation’s payroll taxes are mainly used to support the previous generation’s retirement. If contributions from younger workers go into personal accounts instead, the problem should be obvious: who will pay benefits to today’s retirees and older workers? It’s just arithmetic: 2-1=1. So privatization creates a financial hole that must be filled by slashing benefits, providing large financial transfers from the rest of the government or both.” [New York Times, 06/21/02]

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The Campaign for America’s Future is putting the spotlight on misleading campaign messages. As supporters of privatization try to spin their way out of a fair debate over the consequences of their ideas, the Campaign for America’s Future’s “Truth Squad” will expose the misrepresentations and lies. For more information, contact Hans Riemer with the Campaign for America’s Future at (202) 955-5665 or riemer@ourfuture.org.

For more information about Social Security visit our Social Security SuperPage.