GOVERNOR BUSH’S SOCIAL SECURITY

[southernleftylady]

Washington, D.C. -- George W. Bush has outlined a plan today to partially replace Social Security with a system of individual accounts. He has been rightly criticized by Vice-President Gore and others for his intention to avoid spelling out the details of the proposal. As everyone familiar with the privatization debate is aware, it is impossible to assess the true costs and risks of the proposal without knowing the specifics.

More importantly, Governor Bush's proposal appears to be relying on false projections for stock market returns. Governor Bush and his economic advisors apparently base their proposal on the assumption that the returns in the stock market will be the same in the future as they have been in the past. They make this assumption even though the Social Security trustees assume that the economy (and corporate profits) will be growing at half the rate in the next seventy-five years as they have over the last seventy-five years.

Given current market valuations, and the trustees projections for profit growth, the returns in the stock market will be between 3.5-4.0 percent above the rate of inflation, rather than the 6.0-7.0 percent assumed in Governor Bush's plan. This makes a huge difference in calculating the benefits of individual accounts. Governor Bush's false assumption will lead to projected benefits that are nearly fifty percent higher than a projection based on realistic assumptions about stock returns.

http://www.cepr.net/Social_Security/bush_release.htm