'Saving' Social Security Won't Secure Retirement

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Published March 14, 2007

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If Social Security is such a great program, why is it mandatory?

As the ’08 election cycle begins in earnest, few see any prospects for Social Security reform. However, a deal to "fix" the problem may be closer than we think.

President Bush is eager to have a domestic policy legacy, and has signaled his willingness to strike a deal with the Democratic-controlled Congress.

For its part, the Democratic Congress has promised to "put everything on the table" to save Social Security.

Unfortunately, there is not much to put on the table, because only two options exist in the current policy paradigm: raising taxes or cutting benefits.

Neither is particularly good politics or policy.

Such solutions focus on Social Security "solvency" rather than genuine retirement security.

A quick fix will kick the can down the road and temporarily extend the solvency of the program.

Yet the fact remains that young workers will pay twice for this fix, first in higher taxes over their working lives, and second with lowered benefits at retirement — all without finding a permanent solution to the solvency problem.

Social Security is not a retirement system; it is a government program that was created in the 1930s that does not reflect America’s new economy of independence, ever-changing career paths and the challenges of a global economy.

The program certainly does not reflect today’s ownership society of 401(k)s, mutual funds, easy access to financial information and diversity in investment portfolios.

So why does this outdated program continue to exist?

A government program is the closest thing to immortality on Earth.

Bureaucrats, special interest groups, and politicians all have a strong vested interest in protecting the program and expanding its budget and reach.

In 1937, Social Security collected a combined 2 percent of an employee’s income; today, it collects over 12 percent.

It is also important to recognize that, politically, Social Security has served advocates of big government well.

Washington garners a significant amount of power from the one-size-fits-all bureaucratically administered solutions provided by the program.

Changing Social Security is a direct threat to centralized power that would dramatically reduce the size and scope of government.

Heading into this debate, the first priority of big government advocates is simply to save a program, not create a retirement program that gives individuals greater control of how they save and invest for the future.

Social Security is more than a failed government transfer program; it is also a congressional slush fund.

Since 1970, when Social Security surpluses were first treated as part of the general budget, over $1.69 trillion in surpluses has been spent on everything except retirement security, including NASA missions, AIDS programs in Africa, agriculture subsidies, earmarks such as the "bridge to nowhere," and the war in Iraq.

As the money is spent, it is replaced in a vault in West Virginia with government IOUs that pass from one generation to another — a hot potato that will eventually land in the taxpayer’s lap when the chits are called in.

As President Clinton said in his 2000 budget, “The existence of Trust Fund balances does not by itself have any impact on the government's ability to pay benefits."

In 2001 Secretary of the Treasury Paul O'Neill warned Congress that “there is no variable asset in the Social Security trust fund.”

For those serious about real retirement security, personal accounts offer a promising alternative to the pain -- low rates of return, shrinking benefits, and higher taxes -- to be incurred for the sake of saving a government program.

Every American would enter the investment class with accounts containing real assets that they own, control, and can pass on to family.

The alternative is to rely on the mercy of politicians who control the existing retirement system.

Reform would create an entirely voluntary choice, and all promised obligations would be met.

Social Security would not be destroyed; it would simply have to compete against other investment options.

Personal accounts allow all Americans to build wealth and join the ownership society by harnessing what Albert Einstein said is the "greatest power on earth”: compound interest.

Moreover, personal accounts would fundamentally increase individual freedom and end the practice of involuntarily compelling workers to take part in a system that is inferior to other options.

Such reforms would be profitable, portable, and controlled by individuals.

Personal accounts would eventually transform Social Security’s $12 trillion unfunded liability into individually owned assets that will provide real financial security in retirement.

It would be the single largest debt reduction in world history.

President Bush came to office sincerely wanting Social Security reform, but the push for personal retirement accounts did not receive the same dedicated leadership we saw with No Child Left Behind, tax cuts, or the Iraq War.

Comprehensive reform has subsequently been pushed off the table by the war and the loss of Republican majorities in Congress.

The idea was not defeated, it was just out-politicked.

At this point, the president should resist any temptations to sign a bad bill not premised on personal retirement accounts.

Compromise means tax hikes and benefit cuts aimed at extending the Social Security program, not on strengthening individual retirement security.

The bargain is that the Democratic Congress gets to raise payroll taxes to preserve the program, while President Bush may get small personal accounts — and all the blame for raising taxes and cutting benefits.

After a nice ceremony at the White House, the ink will barely be dry before Democrats head toward cameras to blame Bush for cutting benefits and imposing the largest tax hike in history.

Any compromise focusing on solvency that forces people to pay more will disproportionately hit the middle class, entrepreneurs and small business, the backbone of our economy.

Raising payroll taxes will also have a negative effect on personal savings, furthering the divide between those able to save and those just scrapping by.

The best chance for meaningful Social Security reform may be the 2008 presidential race, in which voters can demand that candidates take retirement security seriously and not allow them to run from the issue.

If Democratic candidates simply want to preserve the program and favor tax hikes and benefit cuts, Republican candidates will have an opportunity to take the benefits of personal accounts directly to the American people.

If the solution is so clear and the problem so obvious, why has Washington failed on retirement security?

There is a different mentality in the Capitol that is antithetical to trusting people and hostile to individual freedom.

It was best summed up by Sen. Edward Kennedy.

Several years ago, in a conference committee regarding medical savings accounts, I heard him say, “We can’t give people that choice; they’ll take it!”

The time has come for politicians to let Americans have a choice: Do they want real retirement security or do they want to save a government program?

Former House Majority Leader Dick Armey (R-Texas) is chairman of FreedomWorks, a national grass-roots advocacy organization.

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