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Correcting Boxer’s ‘deliberate distortions’ on Social Security

Paul Duggan

First, Sen. Barbara Boxer deserves our gratitude for taking the time to come to Truckee and conduct a “town hall” meeting at the Senior Center. Her presentation on Social Security was one-sided, but this is OK. She is not obligated to provide time for opposing views. But her deliberate distortions and mis-statements are not acceptable.

I will correct her major errors.

1. The stock market is too risky.

In the time spanning a person’s career, there has been no 20-year period since 1926 where the stock market returned less than 3.36 percent annually. This is including depressions, wars, recessions, energy crises and the disco craze. In the typical 30-year worker’s career, in no period has the market returned less than 8.53 percent annually. This compares to the estimated annual rate of return of the Social Security system of 1.23 percent for an average family of four.

If the market is too risky, how would Sen. Boxer explain the tens of millions of 401(k) accounts, IRAs (41 percent of all households) and over 60 million individual investors and why does the state of California have its STRS and CALPERS pensions invested in the market?

Again, if this is such a risky deal, why do federal employees, including Sen. Boxer, invest in the Federal Employee Retirement System (FERS). These personal funds belong to the federal employee and may be invested in a variety of stock market funds. The Personal Savings Accounts contemplated for Social Security are modeled after FERS.

According to the Federal Reserve Board, public employee pension plans alone had nearly $2 trillion in assets as of September 2004.

2. Wall Street will get 20 percent off the top of private accounts.

I read the report upon which this assertion is based. First, the 20 percent number is the cumulative fees paid over 45 years of investment at an annual 0.8 percent fee. It is not “off the top,” which misleadingly infers that only 80 percent of one’s annual contributions are invested. As a matter of fact, with an annual fee of 0.8 percent, 99.2 percent of one’s annual contribution is invested.

The Federal Employee Retirement System (FERS) mentioned above has expenses of only 16 cents for every $10,000 in worker’s accounts. This is only 0.0016 percent, far from the 20 percent scare number.

Indeed, index mutual finds typically have expenses of 0.2 percent and for medium sized IRAs, there is no account maintenance fee at all.

3. Benefits for current recipients will be cut 45 percent.

What Sen. Boxer neglected to say is that that the “cuts” would be in projected future growth of benefits, and this would come about only 75 years in the future. A reduction in the rate of growth is not a “cut.”

4. Social Security Disability Insurance (SSDI) and survivors benefits will be eliminated.

The proposed reforms to Social Security will in themselves have no effect on SSDI and SSI. These are separate programs and in need of reform themselves. Indeed, a reformed Social Security system could provide better SSDI and SI benefits.

5. George W. Bush was the first president to borrow from the Social Security Trust Fund.

Not true. It was President Lyndon Johnson, a Democrat, as even Sen. Boxer admitted later.

6. Personal Savings Accounts will be “cashed out” at age 65 and put into Social Security.

Not true. It is proposed that it be handled exactly like the Federal Employee Retirement System (FERS) after which it is modeled.

7. The Social Security Trust Fund has assets.

Again, not true. Surplus payroll taxes are “lent” to the federal government in exchange for treasury bonds or IOUs. In 13 years the required payments to recipients will exceed the social security taxes paid by the American people. When the recipients look into the trust fund they will find nothing but these IOUs ” no cash, no hard assets to sell ” nothing but IOUs. So the federal government will have to begin repaying these IOUs immediately. How? Not from the Easter Bunny but only by raising taxes, that is, by exacting more money from the American people.

Paul Duggan is a retired high-tech executive living in Truckee.

He invites comments to the Sierra Sun or e-mail to

pduggan90@sbcglobal.net.


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