Social Security reform made it to the networks’ nightly news
agenda this week, but the stories were most noteworthy for what they
left out. While Texas Governor George W. Bush’s plan for private
accounts was deemed "controversial" and was the focus of almost all
of the coverage, Vice President Al Gore’s plan to maintain the
status quo through ever-increasing federal taxes was barely
mentioned and never criticized.
Security is a campaign issue this year because the current
government-managed, pay-as-you-go pension system will run out of
cash in the coming decades, as more Americans will reach retirement
age and fewer workers will be around to pay the taxes that support
them. Experts on all sides agree that the sooner a fix is in place,
the less disruptive and painful it will be.
In a speech on May 15, Bush proposed reforming the system to
allow individuals to divert a small portion (probably about
one-sixth) of what they now pay in payroll taxes to private
investment accounts. Bush and many free market economists believe
that private investment accounts would help boost the system’s rate
of return far above the current 1.6% or so.
There’s some good evidence to support that belief. Nearly 20
years ago, Chile switched from a Social Security-style pension
system to one of private personal investment accounts, and its
average real rate of return has been about 11 percent each year. Not
only are Chilean retirees enjoying fatter pension checks; according
to Jacobo Rodriguez, assistant director of the Project on Global
Economic Liberty at the
Cato Institute, Chile also has significantly increased its
savings rate, posts annual growth rates of nearly 7%, and has seen
its unemployment rate drop from 15% in the 1970s to an average 5%
during the 1990s.
But accounts of Chile’s mostly-successful private program were
omitted from TV coverage of the U.S. Social Security debate. Indeed,
many in the media reacted with skepticism or even outright hostility
to the prospect of private accounts. "Depending on the details,
which George W. Bush isn’t giving, plans like his could be expensive
or painful," warned CNN’s Brooks Jackson on the May 15 edition of
The World Today.
"Unfortunately, most of us don’t know what we’re doing in the
stock market," the Atlanta Constitution’s Cynthia Tucker told
the audience of CNN’s Talkback Live earlier that day. "I have
bought a little stock, just a little bit, about $1500 worth a couple
of years ago outside of my 401(k). It promptly went down, and that
has been my experience with the stock market so far. So I think the
problem with [the Bush plan] is that most of us don’t have the savvy
to handle that kind of investing."
Never mind that the private accounts that Bush advocates will
more likely resemble Tucker’s 401(k) than her individual stock
purchase. The key complaint that reporters voiced about the concept
of private accounts -- versions of which have also been proposed by
several prominent Democrats, including Sens. John Breaux, Robert
Kerrey, Daniel Patrick Moynihan and Charles Robb -- was that the
government can’t "guarantee" the rate of return on such investments.
That’s necessarily true, and not at all bad: government can’t
guarantee a return because they aren’t the government’s investments,
they’re yours. Fears that some individuals will make bone-headed
investments are premature, since the details of what would and
wouldn’t be allowed will need to be decided by Congress, even if
Bush is elected in November. (Since backers of private accounts will
have to win over some of the more risk-averse members of Congress,
any actual program would probably be built around a mix of
mutual-type funds and bonds.)
Yet Vice President Al Gore has already raised the specter of an
"S&L-style bailout" in which successful investors must support those
who lose money. "Under the Bush plan, you could lose some or all of
the money that you invest, and millions could be left without enough
to make ends meet," Gore was shown saying without contradiction on
the May 15 NBC Nightly News.
Although every newscast gave Gore a chance to criticize Bush’s
proposal, the Vice President’s competing plan to maintain the Social
Security system garnered relatively little coverage. The most
extensive discussion was on NBC. "The Vice President says he would
leave Social Security unchanged," reported David Gregory on May 15.
"Instead, Gore says he would shore up the program with interest
savings generated by paying down the debt. Such an approach, he
contends, preserves Social Security for another 50 years."
The CBS Evening News’s John Roberts stated merely that
"the 2030 Center, a liberal think tank for young people, agrees with
the Vice President and favors Gore’s plan to use savings from paying
down the national debt to keep Social Security afloat." CNN’s Brooks
Jackson noted that Gore "has proposed increasing some benefits, and
using general tax revenues to keep the system going until the year
2050," while the report filed by Dean Reynolds for ABC’s World
News Tonight didn’t include any mention of Gore’s plan.
The neutral and low-key manner in which reporters relayed the
bare bones of Gore’s plan probably gave a lot of viewers the
impression that it’s less risky than Bush’s, which NBC’s Tom Brokaw
labeled "controversial" and which was the focus of all of the
debate. Certainly Bush’s recommendations deviate further from the
status quo, but many free market experts say Gore’s plan actually
contains more long-term risk for workers.
Under the current pay-as-you-go system, for example, workers have
no legal claim to any of the money they’ve contributed to Social
Security until they retire, and Congress can reduce or eliminate
benefits at any time. Money deducted from one worker’s paycheck is
almost immediately mailed to a retiree; if a worker dies before
retiring, all of her contributions are forfeited. Since workers
enjoy no normal property rights, argues Suffolk University Law
Charles Rounds, "a worker’s retirement security is entirely
dependent on the political decisions of the president and Congress."
Under Gore’s plan, workers would remain totally dependent on the
government, while Bush’s plan would allow them to personally control
about one-sixth of their retirement "contribution."
Additionally, the promise of future Social Security benefits may
dissuade some workers from creating their own retirement accounts,
while the heavy and regressive payroll tax makes it difficult for
low-wage workers to establish their own savings. One-third of
Americans have no savings, and another third have total savings of
less than $2,500. "A real problem with the current system is that it
makes people think that they are saving when they are not," Nobel
prize-winning economist Milton Friedman told Investor’s Business
Daily. Gore’s plan wouldn’t make it any easier for workers to
save their own money, while Bush’s would offer workers the benefit
of their own personal accounts, which would grow over the course of
an individual’s working years.
Gore would forestall Social Security’s looming insolvency by
diverting an increasing share of non-payroll tax receipts to the
program, beginning in 2011. He would maintain federal income tax
rates at their current high levels, which are expected to produce
large surpluses over the coming years, and use those surpluses to
first pay off the public portion of the national debt (about $3.6
trillion), and then begin direct transfers of $100 billion to $200
billion per year to the Social Security fund.
This amounts to a de facto increase in the payroll tax, further
diminishing Social Security’s already dismal rate of return. Even
though it might hurt long-term economic growth, keeping taxes high
seems Gore’s only option; he seems reluctant to cut benefits (he’s
actually proposed increasing them for women), and has ruled out any
further increases in the retirement age after it reaches 67. But
lowering the rate of return would make what is now a bad deal for
workers even worse.
The media now widely accept the notion that something needs to be
done to reform the Social Security system before the Baby Boomers
retire. Both presidential candidates have offered plans, and Gore’s
is at least as worthy of discussion as Bush’s. This would be as good
a time as any for the networks to start covering both sides of this