by Rod D. Martin
July 23, 2004
For Beltway leftists, it’s one of their worst nightmares. For true-blue conservatives, it’s one of their greatest hopes. Forty years ago, Ronald Reagan suggested it; more recently, Daniel P. Moynihan recommended it. And last January, President Bush proposed it — while Senator John Kerry and friends attacked it.
“It” means real Social Security reform: giving Americans the freedom to own and control their own personal retirement accounts. It’s purpose is not merely to avoid Social Security’s impending bankruptcy, but to radically raise seniors’ standard of living, and, in Moynihan’s words, eliminate poverty by creating universal, inheritable, intergenerational wealth.
And now, as Kerry’s coronation approaches in Boston, Bush’s vision is finally advancing in Washington.
Two reform bills have just been introduced in the House, one by Rep. Paul Ryan (R-Wisc.), the other by Sam Johnson (R-TX), with Pat Toomey (PA) and Jeff Flake (AZ) as co-sponsors.
Both bills recognize the fatal flaws of the current system: its looming bankruptcy once the baby boomers all retire, its negative after-inflation returns on the tax dollars “invested,” its trapping the poor in their poverty, and, above all else, its foundational fraud: there is no trust fund, and there never was. What comes in today goes out today, only a fraction ever paying for anyone’s retirement.
Both bills let wage-earners place roughly 6.2% of their paychecks — half their total payroll tax — into personal accounts no bureaucrat can touch.
That’s a big chunk of money — and that’s exactly the idea. What good is having your own account if you can only toss in chump change? Yet at the same time, enough money has to be kept in the old system to take care of those too old to change, or those who fall through the cracks.
The two bills are quite different. Ryan’s bill returns to workers some of their contributions under the old system, while the Johnson bill immediately gives them negotiable bonds reflecting such contributions. Ryan lets poorer workers invest a higher percentage of their paychecks than wealthier folks, while Johnson rejects all such discrimination. And while Ryan’s plan guarantees all the benefits promised under the old system and pays for increased costs by cutting domestic spending elsewhere, Johnson’s finances these costs by reducing benefits growth within the system.
Either bill is vastly superior to the status quo. But count on both to be fanatically opposed by Washington’s leftist, redistributionist elites. Parroting Al Gore’s 2000 rhetoric on the Bush tax cut plan, John Kerry calls even partial Social Security privatization a “risky” scheme. Since Kerry (rightly) opposes the only other options to tackle Social Security — cutting benefits or raising taxes — that means he opposes saving the system at all.
Where will that lead? If Kerry’s being truthful, think Titanic. If we do nothing, Social Security will absolutely go bankrupt. Demographics equal destiny: there are 80 million baby boomers and not nearly enough Generation Xers to support their retirement. Once they retire, the Ponzi scheme will collapse.
Of course, if Kerry isn’t being truthful, then think massive, calamitous tax hikes. Indeed, that’s been the game all along. When Social Security began, the combined employer/employee tax rate was 2% on the first $3000 of income. Now, in 2004, it’s 12.4% of the first $85,000. Without reform, that will have to triple — at least — all in just the next generation. And that will mean permanent recession.
The nervous nellies wail about stock market volatility. Yet even the most risk-averse worker would do better with his own private account than with Social Security’s money-losing deal. Stable-value funds, the most conservative options in current 401(k) plans, average 4-5% even in today’s low-interest-rate environment.
The “riskiness” is political, not real. Other nations have already privatized, and the results have been spectacular. In Chile, thanks to privatization and despite a much lower standard of living, the average worker retires on more money than the average American. The same holds true in Britain, where workers have easily averaged double-digit returns in their private accounts; in fact, after just a few short years, Britain’s private accounts now hold more assets than all of Europe’s public pension systems combined.
Think of it this way: Under our doomed status quo, if you retired today, after 45 years of work, you’d get a paltry $1,128 monthly sum from Social Security. But had you been allowed to invest your payroll tax money in an IRA, you’d have over a half million dollars instead, or over $3,700 a month. And when you die – unlike under the current system — you could pass on everything that’s left to those you love, and thereby secure their futures as well.
The greatest “risk” is not reform: it’s doing nothing. And we can thank George W. Bush and these courageous Congressmen for standing up for us all.