NCPA - National Center for Policy Analysis

Stocks Get Better Returns Than Treasury Securities

May 22, 2000

George W. Bush's Social Security reform plan would allow younger workers to divert part of their payroll taxes into private accounts, like an IRA or 401(k), where the money could be invested in corporate equities. Presumably, those choosing this voluntary option would give up some portion of their future benefits. Those not choosing the option would get the same Social Security benefits they are currently entitled to.

Current retirees would be unaffected by the Bush plan in any way whatsoever.

However, Bush's advisers say that if younger workers do as well as the long-term average, they will get a real return of 7.2 percent, versus 1.9 percent from Social Security.

This would allow a modestly-paid worker to have $100,000 or more at retirement in addition to Social Security.

Predictably, Democrat Al Gore trashed the Bush plan as too risky. But a year ago, Gore urged that the Social Security trust fund (but not individual workers) be allowed to invest in stocks.

Said Gore: "During this whole national discussion, one of the single most important, salient facts that jumped out at everybody is that, over any 10-year period in American history, returns on equities are just significantly higher than these other returns."

Gore now repudiates those remarks. Hence, any plan investing Social Security funds in anything other than U.S. Treasury securities is beyond the pale. (By law, Social Security Trust Fund assets may not be invested in anything else.)

  • In 1999, 61 percent of defined benefit plan assets were in equities, with defined contribution plans having an even higher 69 percent in stocks.
  • This suggests workers who can choose favor stocks over bonds by more than 4 to 1.

Yet Al Gore in effect says no worker should be allowed to invest his Social Security retirement funds in anything other than Treasury securities.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 22, 2000.

 

Browse more articles on Tax and Spending Issues