Social Security: The Real Risks

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Social Security: The Real Risks

By Peter Ferrara on 10/20/2004

 

This op/ed was originally published in the New York Post. John Kerry's bitter denunciations of President Bush over Social Security are craven, opportunistic and false. Worse yet, Kerry's approach to the program's crisis risks disaster.

Kerry charges that Bush secretly plans to cut benefits or hike Social Security taxes to fund his "scheme" to privatize the program. In fact, Bush has spelled out seven principles of reform, including no tax hikes or benefit cuts. Kerry's claim that Bush's plan will cost trillions is another canard.

Consider just one plan — which the White House has stated is consistent with all the president's principles, and should be considered as one reform option: the legislation recently introduced by Rep. Paul Ryan (R-Wis.) and Sen. John Sununu (R-N.H.).

The bill would allow workers the freedom to choose to shift roughly what they now pay in payroll taxes in their FICA box each paycheck to personal, individually owned, savings and investment accounts. Workers would choose investments by picking a fund managed by a major private investment firm, from a list officially approved for this purpose and regulated for safety and soundness, similarly to the operation of the Federal employee Thrift Savings Plan.

Benefits payable from the tax-free accounts would substitute for a portion of current Social Security benefits, based on the degree to which workers exercised the account option over their careers. Otherwise, there would be no change in currently promised Social Security benefits — not only for today's seniors, or workers nearing retirement, but for anyone in the future.

Anyone who chooses to stay in the current, old Social Security framework would receive the benefits promised under current law. Survivors and disability benefits would continue unchanged.

Moreover, the bill maintains Social Security's safety net by including a Federal guarantee that workers with personal accounts would receive at least as much as promised by Social Security under current law.

The chief actuary of Social Security has already officially scored the bill as achieving permanent solvency for the program. That results because the large personal accounts proposed in the bill take over so much responsibility for paying future retirement benefits.

Kerry says Bush's plan would cut benefits by 30 percent to 45 percent. But workers with personal accounts under Ryan-Sununu would receive much higher benefits than Social Security promises today (and no one could receive less).

A recent study I authored for the Institute for Policy Innovation showed that workers investing in such accounts (vested half in stocks and half in bonds) over their careers and earning standard long-term market returns would receive two-thirds more in benefits than Social Security even promises, let alone what it can actually pay.

Kerry says Bush's plan would cost $2 trillion. In fact, that's just an accounting illusion — what it takes to move from a pay-as-you-go system to a program of genuine saving for retirement. Such reform does not increase Social Security's net liabilities.

Indeed, Steve Goss, the chief actuary of Social Security, has scored the Ryan-Sununu plan as providing permanent solvency in the system without benefit cuts or tax hikes. (He also projects that workers would accumulate $7 trillion in the personal accounts after just the first 15 years.)

The personal accounts proposed by President Bush would modernize and expand Social Security by bringing in a central role for real personal savings and investment. Ryan-Sununu shows how the safety net and social framework of Social Security can be fully maintained with personal accounts.

Meanwhile, Kerry has now explicitly rejected every option for dealing with Social Security's officially recognized problems. He has said no to personal accounts, delaying the retirement age or cutting future promised benefits. With his pledge not to raise taxes on those making less than $200,000 per year, he has rejected payroll tax hikes, too.

By simply (and crassly) opposing reform in hopes of scaring up votes, Kerry would deny workers the freedom to choose a much better deal. That is not progressive — it's a stand against the best interests of working people.

Peter Ferrara is a senior fellow at the Institute for Policy Innovation, and director of the the Club for Growth's Social Security Project.

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