Two views of the Bush Social Security plan

by Mike Whalen

Sioux City Journal

Online Edition

Instead of coasting through his second term, President Bush has decided to tackle one of the most sacred issues possible - Social Security.

His commitment to do more than pay lip service to reform has been met with howls and hand- wringing. Wouldn't it be far easier to ignore Social Security and pass the buck to future generations? After all, say the president's critics, it's not like the system will collapse today, or even tomorrow. That's true, but we also don't have four or five decades before the problem reaches crisis proportions.

Ten thousand baby boomers turn 55 every day for the next 15 years. Most are enjoying their peak earning power right now and billions of surplus dollars are pouring into the Social Security fund. However, those dollars are flowing into a "pay-as-you-go" system so they're flowing out just as fast as they come in. Every dollar collected in excess of what is needed to pay benefits is spent on something else; the so-called Social Security Trust Fund is simply a pile of I.O.U.s.

Ten years from now, the Boomers will move from the "pay in" window to the "pay me now" window. By 2017, Social Security will begin running huge deficits that will soar out of control.

There are some who say we can fix the program's $11 trillion debt with modest tax increases or small benefit adjustments. I call this method "tinker, tinker; cut, cut." A little tinker here, a little cut there. Painless, right?

But don't be fooled.

As Monty Hall used to say on "Let's Make a Deal," you have three choices. Behind door number one is a 50 percent payroll tax hike. Do you want to know what would make every manufacturing job in America move overseas? Imagine a payroll tax rate of 18 percent! Behind door number two is a benefit cut of a third. That would be devastating, especially to a third of seniors who depend on Social Security for almost all their retirement income.

There is a better option: Let workers keep some of the payroll taxes they already pay, and let them voluntarily invest it in a personal retirement account. Over time, the balances in these accounts grow, offsetting part of what the government (i.e. future taxpayers) would otherwise have paid them at retirement. Gradually, we would replace our pay-as-you-go approach with a funded system, under which each generation pays its own way with personal accounts they own and control.

There is a lot of talk about how much it would cost to start up the new accounts. Some estimates range as high as $2 trillion over several decades before the system breaks even. First, it is important to remember that personal accounts do not create a new debt; rather, they pre-pay the debt that already exists. And there are ways to finance it; for example, we could dedicate the current Social Security surpluses to this cause, instead of spending it on other programs.

Personal accounts aren't a risky idea. In fact, there is a perfect model for administering personal retirement accounts right here in the United States. Our congressional representatives have it. The good people who deliver our mail have it. The folks who work at the Department of Agriculture have it. In fact, more than 3.2 million federal employees invest more than $130 billion of their money in a program called the Thrift Savings Plan. And they have earned between 6 and 12 percent on their investments each year, depending on their choices.

Thrift Savings Plan participants don't have to pick and choose individual stocks; the plan doesn't even allow it. Instead, they choose from among five carefully constructed mutual funds - with different degrees of risk - that follow the stock and bond markets as a whole. Don't like the stock market? Then you can put most of your money in government and high-grade corporate bonds, instead. It's your choice.

The Thrift Savings Plan board selects a single institutional investment firm to manage all the funds. Since one firm is managing all the money - and because there are only five funds - administrative fees are only about 0.1 percent of assets. In addition, workers are not bombarded by advertisements and promotional materials from investment houses competing for their business.

The Thrift Savings Plan is easy for investors, simple to administer and Wall Street traders don't get to put a hand on your money. Here's the $64,000 question for opponents of personal accounts: What's wrong with allowing all Americans to invest in the Thrift Savings Plan?

Mike Whalen of Bettendorf, Iowa, is president of Heart of America Restaurants & Inns and is policy chairman of the National Center for Policy Analysis in Dallas, Texas.


Fix, don't nix Social Security system

By U.S. Senator Tom Harkin

Social Security is the most enduring, popular, and successful program in our nation's history. I want to work with President Bush to solve the long-term funding gap and strengthen Social Security. But, amazingly, the president has yet to offer any concrete plan for repairing that funding gap. Instead, he is barnstorming the country promoting private accounts, which even many supporters n including Sen. Chuck Grassley n acknowledge do nothing to strengthen Social Security's finances.

Today, one in every five seniors relies on Social Security for 100 percent of their income. For two out of three, Social Security is their main source of income. The government estimates that, without that monthly check, nearly 50 percent of American seniors would fall below the poverty line.

So there is a lot at stake in today's Social Security debate. I'd like to see a replay of what happened in 1983, the last time we needed to update and strengthen Social Security. A Republican President n President Reagan n worked closely with Democrats in Congress. We made tough choices. And we kept Social Security rock solid. We need that same kind of bipartisan approach this time around.

So far, that has not been President Bush's approach. He claims that Social Security is out of date, and he insists on privatizing it. I respectfully disagree. Today, Social Security is more appropriate and necessary than ever. Fewer and fewer Americans have private pensions. Under the president's plan, workers could invest two-thirds of their Social Security contribution in stocks and bonds, but those returns could not make up for the deep benefit cuts and would be subject to the whims of Wall Street. It is more important than ever to know that Social Security is rock-solid and risk-free, something we can count on 100 percent, even if the stock market hits the skids as it did four years ago.

Second, we need to encourage people to save more, to invest, and to build wealth. Social Security is just one leg of the three-legged stool of a secure retirement. We must keep Social Security risk-free, in case the other two legs of the stool n private pensions and investments n come up short. But we also need to develop new ways to help working Americans save and invest outside of Social Security.

Third, we need an approach that is fair and equitable.

The president's approach falls far short on each of these criteria. To finance private accounts, he would borrow a whopping $5 trillion over the first 20 years. And he would cut Social Security benefits by one third or more, even for those who choose not to risk their money in privatized accounts. It fails the fairness test for the president to slash benefits for our most needy citizens at the same time he is proposing to make permanent all of his tax cuts for the very wealthy.

I am especially concerned about how privatization would affect people with disabilities. Most people overlook the fact that a big part of Social Security is disability insurance. Currently, more than six million Americans rely on Social Security disability benefits. For many, that disability benefit check is 100 percent of their income. But the president's privatization commission strongly indicated that disability benefits would be cut by the same 30-plus percent as retirement benefits. That is completely unacceptable.

Given the president's emphasis on private accounts and reduced benefits, it is clear to me that this exercise is not about strengthening Social Security, it is about shrinking it and eventually destroying it.

The administration's plan does three things that are very ill-advised and unnecessary: It drives up the national debt by another $5 trillion in the first 20 years. It cuts benefits by 30 percent or more. And it takes the one rock-solid leg of the retirement stool n Social Security n and puts it at risk in the stock market.

Any one of these three things would be enough to send this plan back to the drawing board. But put them all together and you have a trifecta of bad ideas.

My hope is that the president will back away from his insistence on privatization. The math simply does not work, and I am concerned that the president has not thought this through. I hope that he'll sit down with Congress to come up with a reasonable, bipartisan plan not just for strengthening Social Security, but for encouraging saving and investment outside of Social Security.

Democrat Tom Harkin is a United States senator from Iowa.