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J.F. Kelly, Jr. - Contributor

J.F. Kelly, Jr. is a retired Navy Captain and bank executive who writes on current events and military subjects. He is a resident of Coronado, California. [go to Kelly index]

Bush Tackles Domestic Agenda
Social Security debate…

[J. F. Kelly, Jr.] 1/21/05

President Bush has announced his intention to aggressively pursue his domestic agenda during his second term. His enthusiasm is refreshing but the obstacles are formidable since the war on terrorism and the situation in post-election Iraq figure to occupy a large amount of his administration’s time and energy.

Reforming Social Security to include the partial privatization of the system for younger workers appears to be first among his priorities. I certainly wish him well but I wouldn’t bet the farm on his chances for real success. I do appreciate the need for some kind of restructuring. And the idea of giving younger workers some method of building wealth that they actually can own is commendable but that really isn’t what Social Security was intended to do; namely to provide a modest source of assured retirement core income in old age.

I understand also that optional investment vehicles will be limited to conservative investments such as indexed stock mutual funds and bond funds, perhaps with inflation protection for the latter. But it is a mistake to refer to these investments as “safe” as many proponents of Social Security privatization do because “safe” is a relative term. There is risk involved in even these investment instruments. I further understand that these options are intended for younger workers so that their portfolios have an opportunity to benefit from the market’s historical, long term, positive trend. But historical trends do not ensure future performance. For most investors, success comes from patience and persistence; traits that are not universal in the population, young or old, and the required stringent restrictions on accessing the proposed private portions of Social Security accounts will not be popular, especially when markets are in steep decline.

Aside from the considerable cost of implementing reforms and the diversion of Social Security taxes to private accounts which cannot be accessed by the government, I am apprehensive regarding the wisdom of encouraging or even allowing younger workers to essentially gamble with a portion of their Social Security benefit. I don’t wish to sound patronizing, but is it really realistic to expect people with little if any investing experience, who can’t prepare their own tax returns, usually don’t bother to vote and when they do, have difficulty following simple ballot instructions, to make informed investment decisions requiring at least a cursory amount of research and enough reading skills to understand prospectuses, which are incomprehensible to most university grads?

Again, I realize that investment choices would be limited and conservative and perhaps voluntary and that withdrawal of funds would be restricted to carefully defined emergencies but none of these safeguards will insure success and it is reasonable to expect that there will be losers. Even if they are few in numbers, expectations may exceed actual performance and individual results may vary widely, creating dissatisfaction and demands for further reforms.

Retiree advocates such as AARP, joined by many Democrats in Congress, are firmly opposed to such changes. It is to Mr. Bush’s great credit that he is willing even to touch what has been described as the third rail of politics. However, there are approaches other than privatization that should be tried first. It hardly needs to be said that had the federal government kept its hands off what is laughingly called the Social Security Trust Fund instead of spending each year’s surplus, we’d have less of a problem today. Still, there would be an inevitable day of reckoning with the ratio of workers to retirees declining as it is. Reduced benefits should be ruled out. A promise is a promise. But annual benefit adjustments should be indexed to the cost of the living index, not the wage index that has grown at a faster rate. Also, the eligibility age for commencement of benefits should be further increased to reflect the fact that we are living longer, more productive lives.

While admittedly, Social Security requires some degree of restructuring, Medicare poses an even greater and more immediate problem. Yet, Mr. Bush seems to believe that his recently enacted senior drug benefit is enough of a reform for now. It is not. Without reform, Medicare will be bankrupt long before Social Security. If current welfare spending trends continue, we will follow the path of the European welfare states with welfare spending leaving insufficient budget for defense or much of anything else, for that matter.

Adding to the rising welfare costs in this country are millions of illegal aliens who rely on emergency medical facilities for their primary source of medical care. The welfare cost of illegal immigration in the United States is enormous. Add to these costs which fall heavily on California and other border states, the money spent on futile and half-hearted measures to patrol our borders, the cost of welfare fraud, tax evasion, apprehension, incarceration and deportation, legal expenses to insure that the “legal” rights of illegal aliens are not violated and the immense cost of educating their children in public schools. The social costs of illegal immigration are more difficult to quantify but they are real nonetheless.

If Mr. Bush really plans to focus on a domestic agenda, he might consider rearranging his priorities, since the pressure of international events will greatly restrict the time he can devote to any of these difficult projects. Start with an immigration problem that is out of control and needs to be totally restructured and competently managed. Tax simplification belongs near the top of his list. The greatest challenge of all, in my view, will be how to provide affordable medical coverage to all our citizens in need without serious degradation in the quality of care. tOR

copyright 2005 J. F. Kelly, Jr.



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