Wrongly Equate Galveston Pension Plan with Bush’s Social Security
By Amy Menefee
March 25, 2005
Â Â Â Â A flurry of media coverage beginning on
March 18 put Galveston, Texas, back into the Social Security
spotlight. It’s one of three Texas counties that have gained
attention because they opted out of Social Security in the early
1980s, when it was still legal to do so.
Â Â Â Â The New York Times, The Washington Post and ABC News
warned Americans last week that the counties’ pension alternative to
Social Security was a telling “laboratory” for testing President
George W. Bush’s reform plan. According to these news sources, the
Galveston plan produced “controversial” results that cast doubt on
the wisdom of revamping what the Post called the “venerable program”
of Social Security.
Â Â Â Â The Galveston plan allows people to keep the money they
pay into the program – while providing returns on their investment
at a much higher rate than Social Security. The media have painted
the plan as “controversial” because lower-income workers are not
getting paid out of the contributions of higher-income workers, as
they do with Social Security. This is because it is an individual
retirement savings plan, much like a 401(k). For all workers, the
Galveston plan has paid, at minimum, an average return of 5 percent.
That’s more than twice as much as the usual 2 percent return for
most workers paying into Social Security.
Â Â Â Â Rather than fairly presenting the fundamental
differences between Social Security and the Galveston plan, these
stories used those differences in a wrongheaded comparison to attack
the idea of private accounts. They dismissed the program’s success
and implied that Bush’s plan is to apply Galveston to the nation.
That’s simply not true.
Galveston Not Bush’s Plan
Â Â Â Â Bush didn’t set up the Texas plan. He wasn’t even
governor when the three counties voted to leave Social Security in
1981. And his current proposal isn’t like the one used in Galveston.
That hasn’t stopped journalists from writing headlines like The
Washington Post’s on March 19: “In Texas, A Model For Bush
Proposal.” Likewise, The New York Times on March 18: “On Texas
Coast, a Laboratory for Private Accounts.”
Â Â Â Â On ABC’s “World News Tonight” March 20, Terry Moran and
Geoff Morrell again linked the Texas approach to Bush’s proposal and
immediately cited a poll claiming Americans found the idea of
private accounts “risky.” Their story included a graphic titled
“Social Security Better in the Long Run.” However, comparing the two
systems is not as easy as the media make believe.
The Apple is Redder than the Orange
Â Â Â Â Journalists repeatedly refer to a 1999 report from the
General Accounting Office (since renamed the Government
Accountability Office) in their case against private accounts,
harping that lower-income workers would get a worse deal outside
Social Security. Reporters are, however, ignoring the “fundamental
differences in the purpose and structure of the two approaches,” to
quote the GAO’s report. The plans were set up to do different
things, and this means comparing them is destined for disaster.
Â Â Â Â The GAO said that, in looking at Social Security versus
alternative pension plans, “It is important to note that the
Alternate Plans’ performance is not necessarily indicative of how
well a proposed system of individual accounts within Social Security
might perform.” Those words were written in 1999, before Bush was
president. It was a time when President Bill Clinton was also
talking about the problems of Social Security. The GAO researchers
issued these disclaimers to prevent the very type of inaccurate
comparisons the media are using today.
Â Â Â Â Social Security is often portrayed as a “venerable”
source of guaranteed benefits, when the reality is that any future
Congress could cut those benefits just like it did in 1983, when the
program demanded another quick fix. Though workers are paying in and
eventually getting payouts, it doesn’t work like an insurance
program. It works like a welfare program. Galveston, on the other
hand, is a system of individual savings accounts. Workers and their
employers pay in about the same percentage of wages as they would
with Social Security, but they go to accounts with workers’ names on
them. Those who make lower salaries are, by extension, putting away
smaller amounts of money along the way – but they are getting the
same positive return as higher earners.
Â Â Â Â The New York Times was the only media outlet that
openly stated the pro-welfare complaint against the Galveston plan.
Reporter Simon Romero cited Syracuse University professor of social
work Eric Kingson, a much-quoted source on the side of Social
Security. Kingson “says [the Galveston plan] is a threat to the
‘quiet redistribution’ of wealth under Social Security that provides
poorer retirees with a higher share of their pre-retirement wages
than it does to their richer counterparts.”
Â Â Â Â The Times, Post and ABC also cited a 1999 Social
Security Administration study to support their case. The SSA did its
own comparison of Social Security to the Galveston plan. This
excerpt, from the executive summary of this report, sums up the
reasons why it is a complicated and lopsided comparison to make:
Â Â Â Â “Whether the Galveston Plan provides a retirement,
disability, or survivor’s benefit that is higher or lower than
Social Security’s depends upon factors including the worker’s
earnings, time in the labor force, the age and number of
beneficiaries, and the type of benefits being evaluated.”
One Size Doesn’t Fit All
Â Â Â Â Lopsided comparisons in two of these stories are
propped up with retirees from Galveston who say they were fleeced by
the plan there. Both times, a woman says she didn’t get the higher
return that was promised. Each case, however, has a different set of
factors: how long did that person work for the county? Did she take
any lump-sum payments from her personal account along the way,
reducing eventual retirement benefits? Galveston just did away with
a provision called the “hardship withdrawal” in January 2005 to
prevent workers from essentially looting their own retirement funds.
Journalists aren’t addressing all of these questions for each case
they cite and they are using extreme examples to discredit the
Â Â Â Â Galveston and other alternative pension plans do offer
lessons on what works and what doesn’t. However, the view of Social
Security and its alternatives comes down to the question of wealth
redistribution. Instead of dismissing Galveston for not being a
program it wasn’t designed to be, journalists should report the
facts without stretching comparisons to serve their ends.