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Sun, May 26

Social Security reform<BR>could be '04 sleeper issue<BR>

WASHINGTON –  White House advisers tell me that President Bush's re-election campaign will focus on America's security: strengthening the United States against foreign terrorists and battling economic weakness at home.

Certainly, no president in recent memory has had a stronger record of accomplishment in battling terrorism. Barring another attack on U.S. soil, it will be his most powerful vote-getting issue.

The economy is Bush's weakest issue. The gross domestic product is growing but at a snail's pace –  maybe less than 2 percent, while unemployment has climbed to 6.4 percent.

One economic issue Bush will run on is reforming Social Security. His plan, which could be the sleeper issue of 2004, would let workers invest part of their payroll taxes to increase their financial resources far beyond what Social Security will pay them. But because other issues are currently in the spotlight –  namely tax cuts, postwar Iraq and Medicare reform –  this topic isn't getting as much attention as it should.

But individual Social Security retirement accounts will likely get much more of the spotlight next year when Bush seeks a mandate for his unfinished agenda. Already, a group of GOP reformers is pushing a new, more ambitious proposal that is just what's needed to boost Bush's plan.

Designed by economist Peter Ferrara for Americans for Tax Reform, the plan calls for letting workers invest 5 percentage points of their payroll tax in stocks and bonds. This is much more than the 2 percentage points (of a worker's 12.4 percent payroll tax) that the Bush plan envisions at the outset.

"Let's take the case of an average income worker age 40 today who earns $35,000 per year," says Ferrara. "He entered the work force at age 23, earning $17,677 per year then, and earns only the average salary increase each year."

His calculations assume a diversified portfolio of half stocks and half bonds, and an average annual real return of 3 percent for bonds and only 7 percent for stocks, for an average annual return of 5 percent on the entire investment.

In this case, the worker would retire with a total accumulated trust fund of $334,095 in today's dollars after adjusting for inflation.

"That would be enough to pay an annual annuity about 70 percent more than what Social Security promises, but cannot pay, or $2,653 per month compared to $1,567," Ferrara says.

"With the account invested entirely in stocks and earning standard market investment returns, the worker would retire with a fund of $576,761, paying him $5,186 per month in today's dollars," says Ferrara. "This would be well over three times what Social Security promises."

Democrats fiercely attacked Bush's Social Security reform plan in last year's elections in the mistaken belief that it would defeat scores of GOP congressional candidates. But this is, and will continue to be, a winning issue that, as as more people find out about Ferrara's numbers, is only going to get more popular in the months to come.


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