President Bush has advanced his agenda to dismantle Social Security by alleging a “crisis” in the program and talking of its eventual “bankruptcy.”  He has suggested that private accounts are a solution to the financial imbalance, calling them an “integral” part of addressing the long-term shortfall.

Not only do private accounts fail to address the Social Security shortfall predicted for 40 to 50 years in the future, they make the financial situation worse for Social Security and the overall federal budget.

Moreover, privatization involves huge benefit cuts the president never mentions in his sales pitch.

The president announced details of his private accounts in his State of the Union address, but has acknowledged that they do not solve the problem. He has refused to offer a full plan, or provide any specifics at all about how he would close Social Security’s long-term funding gap.

However, he has referred to a plan developed by his hand-picked Social Security commission, which he has called a “good blueprint” for reform.  Combined with the accounts described in his State of the Union speech, the comprehensive plan favored by the president would:

• Divert two-thirds of a worker’s Social Security contributions from the Trust Fund to private accounts;

• Cut Social Security benefits for all future beneficiaries (whether or not they have an account), with additional cuts for those who sign up for an account; and

• Require nearly $5 trillion in new government borrowing in just the first two decades that the accounts are up and running.

Problems caused by the president’s privatization plans:

• Social Security’s financial condition would be made substantially WORSE than if Congress did nothing at all.

·        Nearly $5 trillion would be diverted from the Trust Fund over the first 20 years of the plan.

·        All Trust Fund assets would be used up by 2031 – 10 to 20 years sooner than projected under current law.

·        Older workers’ benefits would be at risk because funds are diverted from the Trust Fund.

• Deep benefit cuts would occur for all future beneficiaries, even if they wanted to stay in traditional Social Security and not have a private account.

·        Benefit cuts of up to 46 percent for younger workers.

·        Same benefit cuts apply to disabled workers, widows, and children.

·        For a 25-year old worker, this cut means a $152,000 loss in guaranteed benefits.

• Social Security benefits would be further cut by a “Privatization Tax” for those with private accounts, essentially taking away most of the account.

·        Workers will not receive both their full account and full Social Security benefit.

·        Those who have an account are subject to a “privatization tax,” which is deducted from their monthly Social Security benefits. This tax is imposed in order to make up the loss to the Trust Fund from diverting Social Security contributions to private accounts.

·        The privatization tax would eat up 70 percent of the value of the account, for workers who get an average return. Workers who invest poorly or more conservatively could have 100 percent of their account eaten up by this tax.

• National debt would explode.

·        The plan relies heavily on deficit-financing to make up the loss to the Trust Fund.

·        The president’s own 2004 Economic Report forecast that, under the good blueprint plan, the debt will be higher for 60 years.

·        At its peak, this additional debt caused by privatization would equal 24 percent of GDP.

Prepared by the Democratic Staff of the House Ways & Means Committee.