TCS Daily

A Kennedy-esque Revision

By Shaun Small - July 23, 2004 12:00 AM

On Tuesday, Rep. Paul Ryan (R-WI) and Sen. John Sununu (R-NH) introduced legislation to reform Social Security the right way -- with large personal retirement accounts and without tax increases or benefit cuts. These reform measures would allow all workers the option to invest up to half of their payroll taxes into personal retirement accounts and harness the impact of compounded interest -- what Einstein called the most powerful force in the universe.

Rep. Ryan and Sen. Sununu recognize that Social Security is broken and must be fixed. They recognize what John F. Kennedy observed in 1961, "[T]he Social Security program plays an important part in providing for families, children, and older persons in times of stress. But it cannot remain static. Changes in our population, in our working habits, and in our standard of living require constant revision."

The current pay-as-you-go system will begin running annual deficits in perpetuity beginning in 2018 -- largely due to the fact that we have fewer and fewer workers supporting each retiree. When Social Security began in 1935 there were more than 40 workers supporting each retiree. Today there are only three, and in the next twenty years the ratio will be closer to two to one.

Some critics of needed Social Security reforms, including the AARP, think the system can be "saved" with "modest adjustments." The adjustments they recommend are only modest if you consider increasing the current 12.4% payroll tax to 20% modest. We would do well to remember that we "saved" Social Security before. In fact, the payroll tax has been increased 19 times since the program's inception growing from 2 percent to 12.4 percent. Tax increases will only slow economic growth, which will ultimately lower payroll tax receipts leaving the government with larger deficits and accumulated debt. Tax increases are not the answer.

Others suggest that we can solve the long-term financial problems facing Social Security, but only if we "tweak" the benefits side and pay out less to retirees over time. Besides, they argue, today's seniors are getting a "windfall" and tomorrow's seniors believe they will see a UFO before they see a Social Security check.

The first argument is false and the second argument is beside the point.

Today's seniors are not getting too much by way of Social Security benefits. To the contrary, we have consigned them to too little. If workers had the opportunity to invest in personal retirement accounts in 1983, instead of following the Greenspan Commission austerity plan -- tax increases and benefit reductions -- our Social Security problem would have been virtually eliminated and individuals would have accumulated over $10 trillion in personal wealth by now!

The other argument suggests that because young people do not expect to receive Social Security we should make good on their cynicism and ensure they receive less than they are currently promised. That is exactly the wrong way to address the problem. As Rep. Ryan and Senator Sununu make clear through their legislation we should guarantee workers at least what they are promised under the current system -- promises made, promises kept. We should save them from the train wreck that is the current Social Security system.

Shaun Small is the director of policy at Empower America. Find out more information on Social Security reform at this website.


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