WP: Politics of Social Security (Kerry says plan "Wall Street windfall")

[DeepModem Mom]

The Politics of Social Security
Kerry to Use Study to Call Bush Plan a Wall Street Windfall

By Jonathan Weisman
Washington Post Staff Writer
Wednesday, September 22, 2004; Page A02


President Bush's push to create individual investment accounts in the Social Security system would hand financial services firms a windfall totaling $940 billion over 75 years, according to a University of Chicago study to be released today.

Sen. John F. Kerry plans to use the paper, by economist Austan Goolsbee, as he campaigns in Florida today, hoping to open a new line of attack against Bush. The Democratic presidential nominee is expected to say that Bush's Social Security plan is a sop to Wall Street donors, who are among the Bush campaign's biggest financial backers.

Bush has expressed strong support for allowing workers to divert some of their Social Security taxes to accounts that could be invested in stocks and bonds. But he has never embraced a specific proposal to revamp Social Security, even after his own Social Security Commission presented him with three reform options. Goolsbee, an informal Kerry economic adviser, examined the option that is often cited as the most realistic.

Under that plan, workers could invest as much as 2.5 percent of their earnings -- or about 40 percent of their share of Social Security taxes -- in private accounts, which Goolsbee anticipates would be managed by private investment firms once their balances reach $5,000. He estimated that annual management fees would be 0.8 percent, a conservative figure, he said, considering that management fees across the spectrum of mutual funds average 1.09 percent.

The result: Over 75 years, fees would total $940 billion, more than a quarter of the $3.7 trillion deficit the Social Security system will run over that time period. That would be the largest windfall in U.S. financial history, Goolsbee said, more than eight times the revenue loss that Wall Street suffered during the 2000-02 stock market collapse....


http://www.washingtonpost.com/wp-dyn/articles/A39923-2004Sep21.html

[gristy]

1. This is one of the big issues w.r.t. individual accounts:

The fees that investors would pay to mutual fund companies. I've recently read the book "The Great Mutual Fund Trap" by Baer and Gensler, where they argue quite effectively that index funds are the way to go. Their expense ratio is as low as 0.18%.

The other big issue is there is NO friggin security in private accounts. The vast majority of future retirees will lose great amounts of money in the market (I speak from experience). And then the gov't will still be stuck with their support.

[izzie]

2. People should save some money but SS should be left alone.

It is a bass safe guard and we should let every one do it. Another hand over to the very rich I guess.