Gov. George W. Bush has chosen to make Social Security reform a key part of his domestic agenda. He is the first presidential candidate in history to propose fundamental social security as a central theme of his campaign. He deserves real credit for bold leadership.
Vice President Gore did nothing tonight to demonstrate his understanding of the real problems facing Social Security. A quick review of the facts is important to understanding this complicated debate.
There are twin crises facing the Social Security system, and Vice President Gore ignored this basic reality:
The first crisis is financial. If nothing is done, the system will begin running cash deficits in just 15 years and will need to be bailed out with $11.3 trillion worth of new income taxes or government borrowing to pay its bills. The program’s long-term liabilities are a whopping $22 trillion – six times today’s national debt.
The second crisis is personal. For younger workers, Social Security is becoming a bad deal. Most younger workers are likely to get a pitifully low 1% to 2% return on their FICA tax contributions. Many minority workers will actually get back less from the system than the amount of taxes they paid into it. After a lifetime of working, that is not fair.
There are twin crises facing the Social Security system, and Vice President Gore ignored this basic reality.
The CSE Position: CSE has long supported the idea of workers being able to invest a portion of their Social Security taxes in asset-building accounts—owned and controlled by them—that provide a real nest egg for retirement.
We believe that Personal Retirement Accounts are the key to giving workers a better return on the money they put into the system, a chance to accumulate real wealth, and gain personal control over their retirement security.
Moreover, Personal Retirement Accounts (which have worked successfully in countries such as Chile, Australia and Great Britain) are also the most sensible way to reduce Social Security’s long-term liabilities because these accounts effectively “pre-fund” the retirement costs of tomorrow’s senior citizens.
More importantly, Personal Retirement Accounts will have the most profound effect on closing the growing “wealth gap” between the nation’s rich and poor. Although more than half of all Americans now invest in the stock market, the wealth divide has been growing over the past seven years. Personal Retirement Accounts, however, would allow 100% of American workers to become stakeholders in the U.S. economy. Imagine the social implications of allowing every worker to own a piece of the American Dream.
The best way to increase the rate of return on workers’ Social Security contributions while we reduce the system’s long-term liabilities is through Personal Retirement Accounts. Given the size of Social Security’s current surpluses, we could allow workers to divert as much as 3 percentage points of their 12.4% payroll tax into personal accounts without affecting the amount of money Social Security needs to pay current benefits.
Earlier this year, Gov. George Bush announced his proposal to allow current workers to set aside a portion of their payroll taxes and establish a personal retirement account. The individual would be given a choice to invest these dollars in a mutual fund, a bond fund or other types of government securities or equity funds. Each worker would still receive a social security check at retirement, albeit at a slightly reduced amount. But in addition, they would have the funds that built up in their personal retirement accounts. They would have these funds to spend in retirement and to pass onto their love ones as part of their estate.
Gov. Bush deserves credit for offering a bold solution to such a politically explosive issue. The proposal moves in the right direction of providing financial security for the overall system, while at the same time providing younger workers with the opportunity to earn a higher retirement.
When Social Security was formed back in 1935, personal retirement accounts probably did not make sense. A relatively small percentage of Americans owned stock and therefore had little experience with investing. But the world has changed in 65 years, and Social Security should change as well. Today, millions of workers save for their retirement by contributing to 401(k) plans. Over 50 percent of workers own stock. Information about the market is now literally at our fingertips thanks to the Internet. Americans should be allowed to take advantage of the advances in technology by allowing a portion of their Social Security taxes to be invested in funds that have historically had far higher returns than traditional Social Security.
Gov. Bush has made another important proposal — one that Vice president Gore agrees with and has proposed himself. Current and near retirees will see no change in their Social Security benefits. Social Security continues to run a surplus and the government should not and must not change the rules when families have made decisions about their retirement based on the government’s promises. Seniors are likely to hear otherwise in the closing weeks of the campaign, but the facts show neither candidate has proposed cutting retirement benefits for current Social Security beneficiaries.
Gov. Bush and Vice President Gore also agree that the Social Security trust fund should not be spent on other government programs. Over the next ten year Social Security will generate over $2 trillion in surpluses, and both men have proposed that the money stay in the trust funds.
Beyond those important and basic agreements, Vice President Gore has a very different vision of the future of Social Security. He very much opposes the idea of personal retirement accounts, calling them a “risky scheme.” Instead, he would leave the current system unchanged, which locks workers into the low returns on Social Security, and proposes propping up Social Security’s finances by reducing overall government debt over the next 15 years.
Vice President Gore is risking the future of Social Security on Congress maintaining fiscal discipline on other government programs, like national defense, education, the environment, Medicare and Medicaid. Here, the track record is not good. Since 1970, Congress has dipped into the Social Security trust fund to pay for these other programs 27 out of the 30 years. Will Congress have the discipline over the next fifteen years to not spend the surplus on other critical programs to produce the $3 trillion in debt relief required by the Vice president’s plan?
These are two very different visions of how to save Social Security. But for the first time in a very long time, these candidates have given voters the opportunity to hear a real debate about this critical program.