Why Social Security Reform Matters

Max Pappas delivered this speech Boca Raton, Florida, on February 24, 2005.

Good afternoon. My name is Max Pappas and I’m the Director of Policy at FreedomWorks, a grassroots organization with over 700,000 members nationwide— and, of course, we’d be happy to add all of you as members, too. It’s great to be here at the Boca Raton Country Club— much nicer than being in Washington, DC where I had to drive through a snow storm to get to the airport.

I’d like to thank Florida FreedomWorks State Director John Hallman for the great work he’s doing for freedom here in Florida. I hope everyone here knows John, and if you don’t, you should get to know him—he can make it real easy to be an even more active citizen. And I’d like to thank the Republican Club for inviting me to speak about the very important issue of Social Security.

As FreedomWorks’ policy geek, it seems like all I’ve been talking about to groups around the country lately— which I’m happy about, because we could get some great, meaningful reform.

I’m glad it’s been dominating the news, but there is so much misinformation being spread that even well informed voters are left wondering exactly what is going on. Hopefully, by the end of this event, everyone in here will feel better informed on this issue.

I’d like to start by talking about why Social Security needs to be fixed, then talk about what reform might look like, and then answer any questions you might have.

First, it is important to remember that President Bush made it clear that those over 55 will see absolutely no change in their benefits— so what we are talking about is a way to ensure that the next generation of workers— for some of you your children, or grandchildren— can be sure that they have a secure retirement.

As Social Security is structured now, it cannot provide that.

To understand what is wrong with Social Security, we have to first understand exactly how Social Security is structured—because the problem with Social Security is its very structure, not simply a temporary future shortfall of money that can be permanently solved with more tax dollars.

Social Security is a pay-as-you-go system, which means that the Social Security taxes collected today immediately go out to pay benefits to those who are currently retired. The money is not set aside anywhere with anyone’s name on it.

In fact, the Supreme Court decided in 1960, in a case called Fleming v. Nestor, that we have no legal right to our Social Security dollars. The court decided that “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility … it demands.”
Which is Washington-speak for, if we owned it, the government wouldn’t be able to take it away.

So today’s worker have to hope that the next generation of workers will continue to pay increasing amounts of taxes to support their retirement, and so on and so on.

This worked fine when there were a lot of workers supporting each retiree. In 1950, for example, there were 16 workers supporting each retired person. Today there are about 3 workers supporting each retiree, and soon there will be just 2 workers per retiree.

To put this in dollar terms, in 1950, for one retiree to receive $1,000 a month, each worker had to contribute just $62.50 a month. Today, the 3 workers supporting each retiree each have to contribute $333 a month for that retiree to receive $1,000. And when there are just 2 workers per retiree, each worker will have to pay $500 in Social Security taxes per month for one retiree to receive $1,000.

This is why there is a crisis and something needs to be done. Those opposed to reform have wasted a lot of time arguing that there is no “crisis.” They insist, instead, that it’s just a really big problem. Fine, call it a really big problem. One thing they cannot refute, however, is the fact that there are fewer and fewer workers contributing to the system and more and more people receiving benefits.

And the longer we put off doing something about it, the worse it is going to get. With every dollar I pay in Social Security taxes, that’s one more dollar the government is going to have to collect in the future to pay me when I retire.

On the other hand, for every dollar I am allowed to put into a personal retirement account—which I’ll talk more about in a minute—that is one less dollar the government is going to owe me when I retire, so one less dollar they’ll have to take from my children.

In fact if in 1983, the last time they made major changes to Social Security, they had allowed workers to put about 6 percent of their income into personal accounts, Social Security would have reached permanent solvency 4 years from now. Instead, it is going to start running permanent deficits in just 13 years.

So there’s clearly a problem with Social Security as we know it.

President Bush isn’t the first to notice this. President Clinton, in the mid-90s, acknowledged Social Security’s inherent flaws. Some of you may recall that the rallying cry of the Democrats at the time, in response to proposed tax cuts, was “Save Social Security First.” Interesting that now they are saying there’s no problem.

President Clinton said there are three ways to deal with the problem:

1. Raise taxes
2. Cut benefits
3. Get higher rates of return through market investment

And he was right. Raising taxes would temporarily solve the problem. But this has already been done 20 times. When Roosevelt began the system in 1935, the tax was 2 percent on your first $3,000 dollars—that’s a maximum Social Security tax of just $60 a year. After 20 tax increases to “fix” the problem it is now 12.4 percent on your first $90,000—a maximum of $11,160 a year, or a $11,100 tax increase.

The problem could also be dealt with by cutting benefits. Some of you may remember when they supposedly fixed the problem in the early 80’s one of the solutions was to start taxing Social Security checks—that’s a benefit cut, more for the government, less for you. They also decided to raise the retirement age—that’s also a benefit cut. If you are going to live to 85 and they raise the retirement age from 65 to 67, that’s 24 months of checks they’re taking away that they had already promised. That’s less for your and more for the government.

And these are the two options guys like John Kerry and the AARP are talking about when they say they system just needs to be “tweaked” or “a few moderate changes” will solve the problem.

Some of you may have seen the AARP dishonesty campaign being run across the country saying this— like in this add. At FreedomWorks, we’re running a campaign calling for the CEO of AARP to resign for hijacking the senior’s group with his left-wing propaganda. To senior’s AARP is a discount program but, in Washington, it is now a left-wing juggernaut promoting more for the government and less for you. You’ll see a postcard on your table—we’re having hundreds of people across the country mail these to him asking him to stop the lies. If you’ll fill those out when I’m done speaking, I’ll be happy to mail them to him. We’ll be launching a website dedicated to it next week—takebackaarp.com.

So it says in this ad that the system just needs “moderate changes.” Sure, raising the Social Security tax from 12.4 percent to say 14 percent may be a moderate change that would help for now—but it is not a moderate change when it has already been done 20 times and increased the tax from $60 to $11,160. And it won’t be a moderate change when they have to keep raising the tax until it eventually hits 20 percent of our income—which the Social Security administration says is the amount that will have to be taken in the foreseeable future to simply pay already promised benefits.

That brings us to option three, personal retirement accounts, which is what President Bush is proposing. This is a proposal to begin pre-funding retirement by allowing workers to keep some of the Social Security tax dollars they are already paying in an account they own and control.

Personal Retirement Accounts would allow every American the chance to build a nest-egg for retirement, and have ownership in our society. It would breakdown the old division between labor and capital by making every worker an owner. Which makes me wonder why the left isn’t all in favor of it—didn’t their hero, that commie Karl Marx, dream of they day when the workers of the world would own the means of production?

So we keep hearing about the president’s “Plan” but all we really have are some general principles he has said he’d like to follow. The way the media talks about it, you’d think there was some 100 page plan hidden in a dark room in the White House that they’ve secretly read—but there isn’t.

There are a few bills that have been introduced on Capitol Hill, but none are specifically being pushed by leadership. Some I think are better than others, and you can ask me about them during the time for Questions, but I don’t have time to detail them right now.

All the good bills do have several things in common that will probably be part of any bill the president signs.

One is that personal retirement accounts would be voluntary. Workers under 55—because those over 55 would see no change in the program—would simply be allowed to opt-in to the personal accounts. If they weren’t interested, they could stay with the current system. I don’t know about everyone else, but I’m opting in on day one.

Another common feature is that the money would only be allowed to go into an approved, well-diversified fund of bonds and stocks. No one would be able to put all their money in Enron, for example, or on red at the roulette wheel in Vegas, as Harry Reid, the Democrat leader of the Senate suggested. Of course, he represents Las Vegas, so maybe he was hoping we would. Age-appropriate guidelines would be provided—for example, older workers would be advised to protect themselves by having more money in bonds as they neared retirement.

These conservative, diversified funds would be similar to the ones available in the Thrift Savings Plan— the retirement savings option available to every single federal employee in the United States— which includes every single member of Congress.

And, of course, these accounts would be owned by each worker so they could be passed on when the owner passed away. This can’t be done under the current system where when a worker dies at 65, for example, after paying in to the system for 45 years, he basically gets nothing for his 45 years of being an honest, hard working, taxpaying citizen. It’s more for the government, and less for his family.

The government gets to keep his contributions— which, of course, is why so few in the government are interested in changing the system. Not only would they lose out on this money, but they would also lose control over our retirements, which we would be put in control of if we were allowed to own our Social Security tax dollars.

Personal retirement accounts that we own and control would mean the end of the days when every senior has to go hat-in-hand to the government for their Social Security check. The government, instead, would have to come to us— and I think we’d all turn the tables and tell them we’d rather more for us and less for the government.

Thank you.