CSE Foundation’s Statement to the President’s Commission to Strengthen Social Security








August 15, 2001

Citizens for a Sound Economy Foundation, and our 280,000 members across the country, strongly believe that Social Security needs to be modernized today in order to adequately provide for the retirees of tomorrow. The best way to reform the program is through a system of Personal Retirement Accounts (PRAs) that would give every American private ownership of his or her retirement savings.

For decades, Social Security has provided elderly Americans with a steady and reliable source of retirement income. However, changing demographics mean that soon Social Security will no longer be able to provide for future generations of retirees.

Social Security is a “pay-as-you-go,” or income transfer, system, which means that, contrary to popular perception, there is no true “trust fund” where your Social Security tax dollars sit and await your retirement. Rather, the money put into Social Security by today’s workers is immediately sent to today’s retirees in the form of benefits. Retirees are therefore fully dependent on the ability of workers to earn and pay taxes if they are to receive their benefits. To date, there have been enough workers paying taxes to support the needs of retirees. Unfortunately, due to a demographic shift caused by the baby boom generation and a longer average life span, the system will be unable to support itself in the near future. As an illustration of such, the worker-to-beneficiary ratio is shrinking considerably. In 1960, for example, there were more than five workers paying Social Security taxes to support a single retiree. In less than 50 years, taxes from just two workers would have to completely support each retiree. As a result, Social Security will begin running a deficit in the year 2016. In 2038, the system will be completely bankrupt and unable to pay benefits.

Substantial reform is needed in order to create a sustainable system that will benefit future generations of retirees without changing the benefits for current and near retirees. This system should empower Americans with ownership and control over their savings and discontinue retirees’ reliance on current workers and the government. The best way to do so is through PRAs, which are individually controlled, voluntary retirement funds. A system of PRAs would allow younger workers to divert a portion of their 12.4 percent payroll tax into an account managed by a privately owned, government regulated investment company. PRAs would earn interest and yield a significantly higher return than working Americans earn in the current system. And most importantly, PRAs would give every working American the opportunity to build wealth through ownership and would ensure that the Social Security system can provide for future generations of retirees.

As the Commission weighs many options for the implementation of PRAs, we ask that you consider CSE Foundation’s Five Principles for Social Security Modernization. These principles provide a guideline for creating s Social Security system that would be sustainable for the future generations, would allow our country to keep its promise to our elderly, and would embrace the American values of ownership, prosperity, and freedom.

CSE’s Five Principles for Social Security Modernization:

Guarantee current and near retirees that they will receive every dollar of Social Security benefits that they’ve been promised.

Allow working Americans to divert a portion of the 12.4 percent payroll taxes they now pay into the Social Security system into Personal Retirement Accounts that they – not politicians – own and control.

Allow working Americans to invest their Personal Retirement Accounts with a broad range of government-approved and government regulated investment companies, including stock brokerage firms, banks, and insurance companies. A portion of their payroll taxes would be sent to the investment company of their choice rather than to Washington.

Grant every American full control of their retirement nest egg and the right to pass on any unused funds to their family or favorite charity.

Do not raise taxes.