January 24, 1999

Clinton’s Plan To Invest Social Security Funds Scary

As if we didn’t have enough controversy over President Clinton’s guilt or innocence, he launched another one between bulls and bears -- otherwise known as the stock market -- with his state of the union address.

It all has to do, of course, with “saving Social Security.”

Republicans and Democrats agree that the 64-year-old retirement program, as presently funded, will not pay off for so-called baby boomers.

Nonetheless, how to save the nation’s most popular entitlement is a matter of heated debate.

Buried in the president’s huge pudding of sugar plums was a retread, Republican proposal to “privatize” some Social Security taxes. Clinton one-upped conservatives by a mélange of private investments --- stocks, bonds, subsidized personal savings, individual retirement accounts (IRA), and employer-backed 401(k) plans.

Speculators, who bet that financial markets will go up (bulls), are thrilled. Those who make money when markets go down (bears) anticipate ultimate collapse of the Clinton scheme.

Fueling all the post-speech euphoria is a $70 billion budget surplus this year. If this continues at the same percentage rate over the next 15 years, it supposedly would produce a surplus of $4.4 trillion! (Exclamation mark mine.)

Clinton would funnel 62 percent of this amount, $2.7 trillion, back into the Social Security fund -- from which the federal government has been “borrowing” money for decades. Of the plow-back, a fourth would be invested by government bureaucrats in stocks.

The second, new part of Clintonization is something he called, patriotically, USA -- universal savings account. “Working class” Americans, as yet to be defined, would be given $500 billion worth of dollar-for-dollar matches over 15 years for savings accounts earmarked for retirement.

Cynics say this would be emergency rations when Social Security goes broke in 2032.

Republicans for years have advocated that three percent of payroll taxes be designated by individual workers for securities of their choice held until retirement. The GOP would give workers an income tax cut if they invested the money for their retirement.

Note the basic difference in the Clinton and Republican plans. The president would put 62 percent of trillions of dollars into the hands of a half-dozen or so investment board politicians at Washington, D.C.

Without a doubt, this government board would bow to politically correct stock purchases. On a verboten list certainly would be companies with an insufficient number of minority employees. Or a tobacco company. Or an enterprise without a woman or two on the board of directors. Or a company having factories in other countries paying wages less than those in the United States. Or firms having large shares of their markets. Or those making big profits.

Contrast this with the Republican three-percent plan scattered among 20 million Main Street investors making decisions based on their assessments of the best return on their money.

The Clinton plan, typical of his philosophy, is to feel good today and hope someone else will take the knocks tomorrow. When all his speech proposals are toted, all go for new social programs.

Anyone who makes monetary obligations today on what the economy will do in 15 years should be fitted with a jacket whose extra-long sleeves tie in the back.

Taking a dim view of the Clinton Social Security plan is Alan Greenspan, chairman of the Federal Reserve Board. He also is engineer of the “ Clinton prosperity” achieved by low interest rates which have driven bond holders and bank certificate savers into wildly speculative stocks.

“There is really no strong evidence to suggest any positive aspects of moving Social Security funds into equities,” says Greenspan. “I do not believe that it is politically feasible to insulate such huge funds from government direction.

“Political pressures could lead to inefficient investments which, in turn, would result in a lower rate of return for retired people and a lower standard of living for all Americans” he said.

What Greenspan probably had in mind is the unintended consequences that government would have by dominating private enterprise.

Billions of new money dumped daily into the stock market would drive up prices already unsustainable by earnings. The U.S. Treasury would have to pay higher interest rates to attract private investors in government bonds. Thirty-five percent of the federal budget already goes for this purpose.

The best use of any federal budget surplus is to give every one a 10- percent across-the-board income tax cut, and then apply the rest on Social Security loans to the general operating budget.

Lowering the national debt -- now $5.8 trillion -- would lower interest rates on Treasury bonds and generate private investment in economic growth. This would make it easier for children of baby boomers to pay the Social Security taxes needed for their parents’ retirement benefits.

Last things first.

By Lindsey Williams, columnist for Sun Coast Media Group newspapers