Weber: Supplemental Accounts Provide Path to Social Security Reform
Washington’s mood in the wake of the super committee’s budgetary collapse was summed up nicely by former Congressional Budget Office Director Alice Rivlin. Noting a hometown Redskins’ loss that same week to their hated rivals, the Dallas Cowboys, she commented: “The Redskins didn’t win, but at least they played well. I wish I could say the same for the super committee.”
That was also the voters’ sentiment — as House Members and Senators found out over Thanksgiving recess.
“I apologize every time I am in front of my constituents,” Sen. Joe Manchin (D-W.Va.) said recently about an electorate giving Congress historically high disapproval ratings.
But there is an opportunity for lawmakers facing “do-nothing Congress” charges next November to redeem themselves and show a seriousness of purpose on fiscal problems they have lacked. After surveying thousands of Members and speaking informally with key Congressional staffers, my group has devised a plan that would fix not that measly one-year, trillion-dollar budget shortfall on the super committee’s agenda but solve Social Security’s staggering and supposedly unfixable projected $21 trillion deficit.
Currently, the Treasury Department mounts a yearly $46 billion raid on what Social Security collects from workers’ paychecks and then puts IOUs in the form of bonds in the Social Security fund to make up for it.
However, as the Office of Management and Budget has been indelicate enough to note, these “IOU claims against the Treasury have no real assets behind them.” The way to solve the crisis is, as the OMB puts it, a choice between “raising taxes or reducing benefits” or a third option listed by the OMB: “borrowing more money.”
Congress always prefers to borrow money, of course, though not without some partisan fighting on the way to the usual gridlock. Thus, Republican proposals to avoid a Social Security bankruptcy by pegging the fund to economic growth leads to charges of “privatization” and images of leaving grandma to the whims of the stock market.
Whereupon Republicans respond by saying such Democratic attacks on good-faith attempts to fix the program is just more tomorrow-will-never-come political opportunism, an opportunism that will set off a 25 percent automatic trigger in benefit drops or even the full collapse of a program that will be missing $21 trillion by 2036.
Look hard enough, though, and most problems have solutions. Now cometh a plan from the Association of Mature American Citizens that not only rules out new taxes or benefit cuts for retirees but actually provides for benefit increases.
Unlike earlier proposals with private accounts, the plan is not intended to replace basic Social Security but to enhance it and keep it solvent.
Owned by the individual and therefore portable, this supplemental payroll deduction would be not only voluntary but tax-deductible and administered as individual retirement accounts and 401(k)s are now. There would be no access to these accounts, except in cases of death or disability until the age of 62. And at least 50 percent of the funds would have to be invested in safe, guaranteed interest-bearing funds.
The IRA offers an appealing windfall for future retirees. For example, a 25-year-old today who contributes only $15 a week to the IRA would get $165,407 in additional income by retirement.
If that amount were $45 a week, the windfall would be $352,389. (The IRA has a $5 per week minimum and $100 maximum.)
The IRA element is a sweetener that makes easier one major change in the program that, while not cutting benefits, does push back the retirement age. The good news is that this is not a political deal-breaker. Democrats and Republicans have already agreed on a three-year push back.
Even the politicians have had to acknowledge that in contrast to the 16-to-1 worker-to-retiree ratio at its inception in 1936, Social Security now has only three employees paying for every retiree. Additionally, the average life span is now 20 years longer. (Not to mention those credible predictions that someone born today has a 50-50 chance to live to 100.)
Some Capitol Hill staffers who are also economists think this program could well burgeon beyond expectations and have long-term collateral benefits such as encouragement of sound national habits of thrift and reinvigoration of the investment culture.
Most important, though, the plan transcends old arguments about Social Security reform and builds on what some Senators have earlier proposed. Thus, it provides a rare chance for Congress to show grumpy constituents they aren’t wholly incapable of bipartisan agreement, even on that seemingly intractable problem of Social Security.
That is something Members of Congress can discuss with their constituents without feeling the need to apologize.
Dan Weber is president of the Association of Mature American Citizens.