A Project of The Annenberg Public Policy Center

More Social Security Spin

Obama-Biden ad misrepresents the Social Security plan McCain supported. Again.


Summary

An Obama-Biden TV ad once again twists McCain’s position on Social Security.

  • It claims he backed a "plan to risk your Social Security in the stock market." In fact, the plan McCain endorsed in 2005 would have been voluntary, and workers could have put only one-third of their Social Security pension fund taxes into private accounts.
  • The new ad also asks viewers to imagine "your future retirement benefits" invested in Lehman Brothers, AIG or Merrill Lynch, three firms that collapsed recently. In fact, the accounts in the plan McCain backed could not have invested in any of those stocks directly. They would have been allowed to invest only in a few government-run stock or bond funds with risks spread over many companies and industries..

Analysis

This is becoming a pattern. In a Sept. 19 article we criticized an Obama-Biden ad for its false insinuation that Sen. John McCain favored massive cuts in current Social Security benefits. And in a Sept. 20 article we criticized Obama for claiming in a stump speech that Social Security recipients would have had their money tied up in the stock market if the plan McCain once endorsed had been enacted. That was also false. Nobody who is now older than 58 would have been allowed to invest in Bush’s proposed private accounts.

[TET ]

Obama-Biden Ad

Announcer: Three years ago John McCain campaigned for George Bush’s plan to risk your Social Security in the stock market. And voted three times in favor of privatizing Social Security.

So imagine if McCain and Bush had gotten their way, and invested your future retirement benefits at Lehman Brothers? Bankrupt. AIG? Bailed out. Merrill Lynch? Sold.

John McCain: The risk is too great, trying four more years of the same.

Obama: I’m Barack Obama, and I approved this message. [/TET]

Doubly Deceptive

Now the Obama-Biden campaign is out with a new ad, which first aired Oct. 1 on a station in Miami, Fla. It is worded a bit more carefully to avoid claiming that any current retiree would have been affected. It refers to "future retirement benefits," which is an improvement over previous attempts to frighten retirees.

But the new ad is still deceptive, and doubly so.

A plan to risk your benefits? This ad says McCain “campaigned for Bush’s plan to risk your Social Security in the stock market.” That is deceptive. Bush’s plan would have allowed younger workers, born in 1950 or afterward, to divert some of their Social Security taxes into private accounts managed by the government. Those accounts would indeed have been exposed to the risk (and the potential rewards) of the stock market. But nobody would have been required to put money into private accounts, which would have been voluntary. And by no means would all of “your Social Security” have been put at risk, since less than one-third of Social Security taxes could have been invested.

Investing at Lehman? Even more deceptive is this bit: “Imagine if McCain and Bush had gotten their way, and invested your future retirement benefits at Lehman Brothers. Bankrupt. AIG, bailed out. Merrill Lynch, Sold.”

No such thing could have happened under the Bush plan. No account holder would have been allowed to directly buy stocks of Lehman, AIG, Merrill Lynch or any other company. The only choices would have been a few, broadly diversified stock funds and made up of investments in a large number of companies, with risks spread widely over different firms and industries. And at least one of the choices would have been to avoid stocks entirely, and invest only in interest-bearing government bonds.

Bush never secured enough support in Congress for his plan to present it as formally drafted legislation. But details were laid out in a briefing to reporters just before his 2005 State of the Union address. Under the ground rules, reporters agreed that the person briefing can be described only as a “senior administration official.” The full transcript of that briefing can still be found on this State Department Web Site:

Senior Administration Official, Feb. 2, 2005: Specifically, the investment options that individuals would have would be somewhat similar to the thrift savings plan [which currently covers federal workers]. In the thrift savings plan, individuals are given presently a choice of five funds. There is a stock fund — a large cap stock fund, a small cap stock fund, an international stock fund. There is a corporate bond fund, and there’s also a fund of Treasury bonds. It’s a very small, limited number. They’re all broadly diversified. And the number of choices that individuals face is very limited, but also very simple. You don’t have to be a financial genius to be able to save money in a thrift savings plan. And I’m living proof of that.

Bush also made clear in an April 28, 2005 news conference that one of the options would be to invest private account funds entirely in interest-bearing Treasury bonds:

Bush, April 28, 2005: The money from a voluntary personal retirement account would supplement the check one receives from Social Security. In a reformed Social Security system, voluntary personal retirement accounts would offer workers a number of investment options that are simple and easy to understand. I know some Americans have reservations about investing in the stock market, so I propose that one investment option consist entirely of Treasury bonds, which are backed by the full faith and credit of the United States government. 

One More Thing

We should also point out that the term "privatize" is one Democrats use, but which Bush himself came to discourage. It could easily give listeners the wrong impression. What Bush proposed in 2005 would have left the private accounts under government management. 

— by Brooks Jackson

Sources

The White House, "Strengthening Social Security for the 21st Century," Feb. 2005.

"Fact Sheet: Strengthening Social Security For Those In Need," White House Fact Sheet, 28 April 2005.

Press Conference of the President, White House Transcript, 28 April 2005.

White House Office of the Press Secretary, "Background Press Briefing on Social Security," press release, 2 Feb 2005.