‘Carve-out’ accounts will break the bank

Over winter break, I was saddened to hear that Congressman Bob Matsui of California had passed away. Congressman Matsui, a third-generation Japanese-American, spent the earliest years of his life in an internment camp. Triumphing over racism and modest economic beginnings, Matsui was elected to Congress in 1978 and, at the time of his passing, was one of the most respected senior Democrats in the House of Representatives.

He was also the Democrats’ point man on Social Security. As President Bush advances an ambitious second-term agenda that includes the privatization of Social Security through the creation of individual “carve out” accounts, there is little dispute that Congressman Matsui will be sorely missed by his Democratic colleagues. If not Matsui, who will lead the opposition to President Bush’s privatization proposal, which threatens to destroy the integrity of the Social Security system while further miring our economy in unfathomable debt? I find the answer to this question to be most ironic. In my opinion, the man best suited to proving President Bush’s carve-out accounts a poor choice for Social Security’s future is the same man who is adamantly promoting their creation: Senator Bill Frist of Tennessee. Before discussing Senator Frist, a little background on the issue might be worth rehashing.

In the Republican Party platforms of both 2000 and 2004, the privatization of Social Security figured prominently in the party’s domestic agenda. Early in his first term in office, President Bush convened his President’s Commission to Strengthen Social Security to establish a manner by which Social Security could be privatized. Proponents of privatization argue that the program is supported by payroll taxes and, therefore, citizens should have some discretion in how this money is manipulated by the federal government. Under the current Republican proposal for privatization, carve-out accounts would be formed. Citizens would be permitted to take a portion of their payroll tax and invest it in government-approved accounts in the stock market in order to accrue additional wealth.

There are, however, several problems with this approach. Diverting money away from the system and into these carve-out accounts trades away the inflation protection provided by today’s system. While today’s Social Security guarantees that the benefits will last a lifetime and keep pace with inflation, privatization provides no such assurance.

Additionally, the initial cost of implementing these reforms is immense. President Bush has promised that an increase in payroll taxes will not occur. However, carve-out accounts will remove a significant amount from the Social Security fund, creating a cash flow problem. If taxes are not raised and money is tied up in the creation of private investment accounts, there will unavoidably be a shortage of funds — a shortage estimated at about $2 trillion. President Bush advocates a solution to this impasse that has become familiar over the last four years: We will simply borrow the money and saddle future generations with the burden of record budget deficits.

Now, let’s take a look at Senator Bill Frist. Ever since President Bush’s re-election, Senate Majority Leader Frist has dutifully promoted the president’s agenda for the upcoming term, including the creation of carve-out accounts. On his Web site, Frist champions President Bush’s proposal: “I support President Bush’s principles for reform, which both protect retirement savings for our senior citizens and expand savings opportunities for our younger generations.” Of all the senators, however, Frist should know that President Bush is hardly protecting the retirement savings for seniors with his new reform. In fact, he knows firsthand the potential horrors that could be realized by this proposal.

In its financial report disclosed on Sept. 30, 2004, Senator Frist’s campaign acknowledged that it had lost over $500,000 in the stock market since 2000. Because of the loss, Frist’s organization was unable to cover a bank loan due last August. While the bank was willing to roll over the loan, permitting Frist to pay up in 2007, America’s senior citizens may have creditors that are not so generous. Should the 47 million Americans who rely on Social Security find themselves in a similar bind, their financial survival is less than guaranteed.

While there is no doubt that Congressman Matsui would have argued brilliantly against the Bush proposal for carve-out accounts, perhaps it is the Republican leader who can best make the case against the reforms. Let Senator Bill Frist put his money where his mouth is — that is, if he has any money left.



Jonathan Menitove is a sophomore in Ezra Stiles College.

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