Anchor Rising: Powerful New Proposals for Social Security Reform

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June 28, 2005

Powerful New Proposals for Social Security Reform

Posted by Donald B. Hawthorne

Representative Clay Shaw, Chair of the Ways & Means Subcommittee on Social Security on Why Social Security Must Be Strengthened

Jack Kemp on latest news

Press Release

At a news conference on Capitol Hill today, eleven Republican Senators announced new legislation to “Stop the Raid on Social Security.” The new measure protects the Social Security surplus by creating personal savings accounts that workers would own and that would be fully inheritable.
Calling on Congress to “stop the raid and start saving the surplus,” Senators Jim DeMint (R-S.C.), Rick Santorum (R-Pa.), Lindsey Graham (R-S.C.), Mike Crapo (R-Idaho), and Tom Coburn (R-Okla.), John Sununu (R-N.H.), Johnny Isakson (R-Ga.), Mike Enzi (R-Wyo.), John Cornyn (R-Texas), Trent Lott (R-Miss.) and Sam Brownback (R-Kan.) announced the introduction of the Stop the Raid on Social Security Act.

The bill works to achieve three goals: 1) the Social Security surplus should only be used for Social Security, not other government programs; 2) Surpluses should be saved in personal accounts that are legally owned by workers; and 3) the surplus should not be used to mask the true size of the national deficit. The proposal accomplishes these goals by walling off Social Security surplus money from other government spending through the creation of personal retirement accounts (PRAs).

According to the Social Security Trustees, Social Security will run a surplus until 2017. Currently Social Security taxes pay for retiree benefits, as well as benefits for widows, orphans, and the disabled. Any funds left over, known as the Social Security surplus, are used for other government spending. Including interest, Congress has already spent $1.7 trillion of the Social Security surplus since 1985.

The Stop the Raid on Social Security Act would change this practice by directing money from the surplus to fund newly created PRAs. People under the age of 55 will have PRAs, or can choose to opt out. The accounts will initially be invested in marketable Treasury bonds. This allows a safe and prudent transition period for the development of personal accounts to protect the Social Security surplus.

An independent board, similar to the one which administrates the retirement plan for Members of Congress and Federal workers, will administer the PRAs. In January 2008, the board can offer individuals the opportunity to diversity into other prudent investment options. When a person retires, the account balance will be used to help pay Social Security benefits.

According to the analysis prepared by the Office of the Chief Actuary at the Social Security Administration, the plan:

- Saves $792 billion in cash surpluses in personal accounts between 2006 and 2016;
- Attracts universal participation since there is no down-side for workers;
- Rebates surpluses back to workers as a on a proportional basis. For example, if the surplus amounts to 1.5% of total taxable earnings for all participants, then participants may contribute 1.5% of their taxable earnings;
- In 2006, workers are estimated to receive a 2.2% rebate. Therefore, a worker earning $35,000 in 2006 could contribute $770 to their PRA. If this worker is 25 years of age, invests in government bonds, and retires at age 67, she would accumulate over $43,000.
- Holds solvency harmless so that “full scheduled benefits would be payable until 2041…”
- Uses near-term surpluses to make a dent in the long-term cash flow deficit. The present value of future spending reductions would total $519 billion.

Senator DeMint said, “Social Security has been a secret slush fund for Congress for over twenty years. It’s time to stop the raid and start the accounts. American families pay thousands of dollars in Social Security taxes every year, and not a penny is saved for their retirement. Politicians of both parties have been secretly robbing workers’ retirements to pay for other programs. This plan will take the first step toward long-term reform by locking away money today and reducing government obligations tomorrow. This plan will restore integrity to the program and restore trust with the American people about how Social Security is run.”

Senator Santorum, Chairman of the Senate Republican Conference and the Senate Finance Subcommittee, said, “This legislation is a necessary first step towards saving and strengthening Social Security. The Social Security program is based on a mutual trust between American citizens and the federal government. Hard-working Americans place their earnings into the Social Security system expecting benefits upon retirement. If our government then uses that money to fund other programs, it constitutes a violation of the public’s trust. By stopping the raid on Social Security, we are not only making sure that Americans’ hard-earned money is saved for their retirement, but we are also keeping our word to millions of retirees that their benefits will be there when they retire.”

Senator Graham said, “Protecting the Social Security surplus has been a priority of mine for some time. It’s one of Washington’s dirty little secrets that each year we take the Social Security surplus and use it to grow the federal government. In place of the Social Security cash we borrow, we put an IOU in the Social Security Trust Fund. These IOU’s will one day have to be redeemed by future generations of taxpayers. It’s a bad practice and one that does nothing to help the future finances of Social Security. The legislation we’re introducing will begin to address this very harmful practice. By creating personal accounts with the Social Security surplus, we can no longer hide the fact we take excess Social Security funds and spend them. I remain committed to finding a permanent solution to the problems facing Social Security. While the legislation we introduce today does not solve all the problems, it is a step in the right direction.”

Senator Crapo, a member of the Senate Finance Committee, said, “It’s a matter of being honest with the American people. This legislation does not aim to address the looming solvency issue, but before we can tackle such a monstrous problem, folks need to know that the government is not going to keep spending their money. I’ve heard from many Idahoans who are concerned about the Social Security program and I want to make certain that we have an open dialogue that includes all the possible solutions to preserving Social Security. We should not be cutting benefits or raising taxes. We need to get a better return for our investment in Social Security and this measure would be a small step in providing just such an opportunity.”

Senator Coburn said, “The only lockbox that will work is your wallet. Any Social Security surplus dollars left in Washington will be spent by politicians. Senator DeMint’s reasonable and common sense plan will allow workers to own a portion of the retirement dollars they have earned.”

Senator Sununu said, “America’s retirees have long-deserved the peace of mind of knowing that the Social Security surplus is not being spent on other government programs. By allowing workers to keep a portion of their Social Security taxes instead of letting Congress spend it, we can take a first step toward securing Social Security for future generations. If obstructionist Democrats cannot agree to even this small step, they once illustrate that they have no interest in reforming America’s retirement security system.”

Senator Isakson said, “This is an excellent first step toward addressing the Social Security crisis and restoring trust with the American taxpayers over how Congress handles their money. I am pleased to join Senator DeMint and my other colleagues in taking steps to protect the Social Security surplus.”

Senator Enzi, Chairman of the Senate HELP Committee, said, “In recent years, Congress has worked to strengthen corporate accountability and enforcement measures against illegal accounting practices in the corporate world. Now it’s time to look at our own accounting practices. This bill is a good first step. It will restore transparency to our nation’s most trusted insurance policy and protect Social Security money from government spending down the road. The managed personal account plan is the best accounting technique to stop the raid on the Social Security Trust Fund and help us move toward long-term solvency.”

Senator Cornyn, a member of the Senate Budget Committee and the Joint Economic Committee, said, “Any small business that kept two sets of books, would be accused of ‘cooking’ those books, and for the first time since 1985 that would stop under this bill. Our true financial condition will become clear, allowing us to refocus on addressing the true deficit by cutting spending. And it will stop the raid on Social Security funds, placing us on the path to real reform.”

Senator Lott, a member of the Senate Finance Committee, “Surely, we can all agree that social security money should be spent on social security. This legislation does that.”

Senator Brownback, a member of the Joint Economic Committee, said, “We are committed to real and meaningful Social Security reform. This bill will ensure your hard-earned tax dollars are dedicated for your Social Security account and not for other government programs."