Retirement Accounts Worth Risk, Snow Says
As opponents of the idea mobilized, Treasury Secretary John W. Snow predicted Thursday that Congress would approve President Bush’s still-sketchy plan to let workers shift some of their Social Security payroll tax payments into private retirement accounts that they would invest, with what Snow said would be little risk to themselves.
In an interview with the Los Angeles Times, Snow acknowledged that workers would incur investment risk if they bought stocks, as expected, in the proposed Social Security retirement accounts.
“Equities have a higher return, as you know, than the risk-free
Critics of private accounts have said that putting Social Security funds in the stock market is too risky.
But Snow said the risk could be managed. One model for the accounts, he said, would likely be the Thrift Savings Plan offered to federal employees, which offers a selection of five investment funds for workers saving for retirement. Two are bond funds, and three are stock funds.
“They’re all prudent vehicles,” Snow said. “That is, this isn’t going and taking your money and putting it on a slot machine in Las Vegas. These are all broad-based, diversified investment funds, which of course reduces risk. Diversification reduces risk. And I’m confident that any personal accounts would be structured around highly diversified ... portfolios, which reduce risks.”
“I don’t see any inordinate risk in the federal employees’ thrift plan,” he said.
Snow spoke shortly after Bush concluded a two-day White House Conference on the Economy with a call not only for an overhaul of Social Security, but also for tax reform, regulatory relief and limits on “frivolous” lawsuits.
At the same time, a coalition of organizations announced its opposition to replacing any part of Social Security with private investment accounts. The groups included the AFL-CIO, the NAACP, the National Organization for Women, the Alliance for Retired Americans and the Consortium for Citizens With Disabilities.
At a news conference by the coalition, Julian Bond, chairman of the National Assn. for the Advancement of Colored People, noted that Social Security was the only source of income for one in three African Americans over the age of 65.
“They can’t afford to see their futures raffled off in a risky stock market gamble,” he said.
The huge AARP, formerly the American Assn. of Retired Persons, whose support was critical to last year’s Medicare overhaul, also opposes private accounts for Social Security. “Taking some of the money that workers pay into the system and diverting it into newly created private accounts would weaken Social Security and put benefits for future generations at risk,” AARP said in its December bulletin to members.
Snow said, however, that private investment accounts would be an “indispensable” component of the administration’s approach. He said the real risk to Social Security would be to fail to take steps to shore up the finances of the system.
The Treasury secretary predicted that Americans would support Bush’s call for private accounts.
He said today’s retirees and older workers would be exempt from the new system and would continue getting traditional Social Security benefits, so this group should be neutral toward overhauling the program.
And many younger workers do not think Social Security will survive until their retirement, Snow said. They will figure that they have nothing to lose by diverting part of their payroll tax payments into personal investment accounts, he predicted.
“So I think there’s the making here of a good political compact,” Snow said.
The Social Security trust fund is taking in tax revenue faster than it is paying benefits, but that will change as the baby boom generation retires. Although the trustees who oversee the fund forecast that it will run out of money in 2042, Snow said the problem was getting more urgent every year.
“You don’t wait until you have a crisis to solve it,” he said. “Too often in Washington we solve the problem only when it’s become a crisis. Every year we put this off. The ultimate solution becomes more difficult, more costly. So now is the time.”
Turning to another of Bush’s stated priorities for his second term -- tax reform -- Snow said a progressive tax code, in which the rich would pay a greater share of their income in taxes than the poor, would be preserved.
Asked if progressivity would be an element of the administration’s plan, he said: “Oh, sure. Progressivity is almost always defined as an element of fairness.”
Asked if that meant the administration would not propose a flat tax -- a single tax rate, rather than the current rates that rise with a person’s income -- Snow said: “Not necessarily. But I don’t want to get into the details of where we might go.” Bush will soon name a panel to propose options, and Snow said he did not want to limit its choices.
