This letter was sent to all members of the House and Senate

October 25, 2005

Dear Representative/Senator:

The National Committee to Preserve Social Security and Medicare, with its 4.6 million active members and supporters throughout the country, strongly opposes H.R. 3304, the Social Security privatization plan known as “GROW accounts.” The plan would increase federal outlays by more than $1 trillion and would cut guaranteed Social Security benefits significantly, leaving future retirees at increased risk for a secure retirement. In addition, the plan would do little or nothing to address Social Security's long-term solvency.

Contrary to recent comments by privatization supporters, GROW accounts are more than a mere pilot project. They have all the pitfalls of the Bush privatization plan, and their enactment will have significant consequences for the vast majority of Americans. Any effort to enact such accounts should be rejected.

In an attempt to make GROW accounts sound harmless, proponents of Social Security privatization have characterized such accounts as merely a “pilot project” for private accounts. At the same time, however, these privatization advocates have suggested that the size of GROW accounts should be expanded to include not only the Social Security surplus but interest earned on that surplus. With this suggested change, the contributions to accounts would average 3.4 percent of wages, only slightly less than the 4 percent proposed by President Bush in his full-fledged privatization plan.

GROW accounts are not a pilot project for privatization; they are privatization. Just like the President's privatization plan, GROW accounts would increase the public debt, cut Social Security benefits, and increase risks for tomorrow's retirees. In a recent analysis, the Congressional Budget Office (CBO) confirmed the negative impact of GROW accounts. According to the report, GROW accounts would:

Increase federal outlays. The analysis said, “CBO projects that from 2007 through 2021, the transfer of funds to GROW accounts would increase federal outlays by more than $1 trillion.”

Increase the public debt for decades to come. CBO said, “In 2007 and all later years, federal debt in the hands of the public would be higher than under current law.” The additional debt would be substantial in the long run. CBO stated, “The bill would increase debt held by the public by 20 percent of GDP by 2063…by 2105, it would be 33 percent of GDP higher than under current law.”

Cut Social Security benefits. CBO noted that the creation of GROW accounts would “reduce traditional Social Security benefits for accounts holders.” This would result from cuts in benefits based on assumed investment returns to the accounts.

Add substantial risk for future retirees. CBO concluded, “The net impact on total retirement benefits would depend on whether an account earned more or less than the Treasury rate of return.” That is because Social Security benefits would be reduced based on an assumed Treasury rate of return whether or not the account actually earned that rate of return.

This CBO analysis illustrates the tremendous economic and retirement cost of this latest privatization plan. GROW accounts will not, as with a pilot project, apply to just a few Americans. Generations of workers will be asked to pay the huge costs of establishing these accounts while future retirees will be trading their traditional benefits for increased risk over the long term. As a result, the National Committee urges that any effort to enact these accounts be rejected.

Cordially,