Whose Social Security Stash Is It?

Don't let President Bush's sales pitch throw you. Money you put into a private account won't really be yours in the way your paycheck is

By Peter Coy

The International Star Registry was way ahead of President Bush and his "ownership society." Long before the President ever thought of giving people their own little piece of Social Security, the International Star Registry was giving folks their own little pieces of the night sky. For $54, plus shipping and handling, the organization gives you your very own star. Call it an intergalactic ownership society.

Of course, stars aren't the same as retirement money. The International Star Registry is quite frank that you don't actually own your star. You just get to give it a name (which, by the way, isn't recognized by scientific authorities). In contrast, President Bush argues that the money in the private accounts really, really would be yours.

"I think people ought to be encouraged to own something in America. You'll be owning a part of your retirement account. It's actually your money to begin with. It's not the government's money," Bush said on Feb. 4 in Little Rock, Ark., during his tour to promote his Social Security ideas.


  But would you really own this money? The more you hear about the details of Bush's plan, the more you wonder whether you would actually own the money in your private account -- any more than you can claim to own a burning ball of gas thousands of light years away.

One thing ownership means is being able to do what you want with something. But under the Bush plan, you'd be given just a small range of approved options of how to invest "your money."

What kind of ownership is that? When money really is yours -- like your take-home pay -- the government has no say over how you invest it. Gold? Pork bellies? Santa Monica real estate? Go for it.

Or a new car. If your retirement stash is truly your money, you should be able to spend some of it on a new SUV -- or a college education, or nursing care for an elderly parent. That wouldn't be allowed under the Bush plan. People wouldn't be able to touch the money in their accounts until they retired.


  In fact, for people below a certain income cutoff, the money in their accounts might be as untouchable as Alpha Centauri. Under the plan Bush is advocating, people whose Social Security income alone would leave them below the poverty line -- a very large group -- would have to put all the money in their accounts toward buying an annuity. That's a monthly payment that would continue until they die (just like the Social Security checks they already get).

Another mark of real ownership is that the thing you own can't be taken away from you. And it's true that Uncle Sam wouldn't be able to take the money out of private accounts. But the system has a wide-open back door. While the government can't take money out of private accounts, it certainly can cut back on the benefits in the traditional part of Social Security.

Indeed, cutting benefits is exactly what President Bush is planning to do. The whole rationale for private accounts is that they'll earn good returns and offset the reduced benefit.


  It doesn't take a conspiracy theorist to imagine what could happen in a decade or so. Let's say private accounts are a huge success and Americans accumulate scads of money in them. Let's also say Washington is still trying to fix traditional Social Security's finances. In that case, lawmakers will simply cut traditional benefits by roughly the same amount as the windfall in the private accounts.

So the government can't take money out of your left pocket -- that's the private account. But it can accomplish the same thing by taking money from your right pocket, the traditional benefit. And you'll be just as helpless as if you never had a private account in the first place.

Nothing, really, will have changed.

Is this wrong? Actually, no. President Bush has good reasons for creating a system that puts tight restrictions on private accounts.


  If people can invest in anything they want, many will make stupid choices, go broke, and end up requiring help from the government. Same thing with letting people take money out in a lump sum, either before or after retirement. If they blow the money, they'll wind up on the public dole.

From the viewpoint of future workers, it might even be logical and defensible for the government some day to offset windfalls in private accounts by cutting government-guaranteed benefits.

The problem isn't the restrictions on ownership in the Bush plan. It's the false billing, which is aimed at drumming up support from a skeptical public.

You won't really "own" the money in your private account. Likewise, you can't own stars in the sky. At least the International Star Registry is up-front enough to admit it.

Coy is Economics editor for BusinessWeek in New York

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