Key Republicans in Congress have proposed a more limited version of President George W. Bush’s plan for private Social Security accounts. The move seems unlikely to break the congressional deadlock over Social Security reform.
Eleven GOP senators last Thursday introduced a bill mirroring a proposal by House Ways and Means Committee Chairman Bill Thomas, R-Calif. The plan would divert Social Security’s annual cash surpluses through 2017 to create individual investment accounts for workers under 55. Democrats scorned the latest GOP effort as just a smaller version of Bush’s plan to allow workers to divert up to 4 percentage points of the 6.4 percent of their wages they now pay to Social Security into private accounts.
Diverting the current surplus
The plan outlined by Sen. James DeMint, R-S.C., and other Republicans would divert some $70 billion a year that Social Security is currently collecting from workers in payroll taxes above and beyond the amount it pays in benefits to current retirees. That surplus is now invested in a trust fund that will ensure full benefits after 2017, when benefits paid are expected to begin exceeding taxes collected. The Republican proposal outlined Thursday would divert that surplus – although not the additional $93 billion a year collected in interest on the existing trust fund – to pay for modified individual investment accounts for workers under 55, unless workers opt out of such funds. Workers who choose such accounts would have their regular benefits reduced by the amount placed in their accounts, plus interest. That’s the same reduction workers who opted for Bush’s private accounts would face in their Social Security benefits.
The surplus would be divided among all eligible workers and initially would amount to about 2.2 percent of each worker’s wages. The investments would initially be limited to Treasury bonds that pay the same as current benefits. Starting in 2008, workers could diversify investments, at their own risk. The program would gradually decline and end in 2017, when the surplus is expected to vanish.
At a glance, The Post finds even less merit in this latest privatization effort than in President Bush’s plan. The fact that it is smaller in scope and temporary in duration does make it more affordable than Bush’s plan. But it suffers from the same fundamental defect as Bush’s proposal in that it doesn’t provide any long-term funding for the transition to private accounts. Diverting the projected surplus between now and 2017 will slow the buildup of the trust fund – and thus speed the day when the fund will be exhausted and unable to pay full benefits.
If you believe the projections of the Bush- appointed Social Security trustees, that day of reckoning is 2041. A more realistic appraisal by the nonpartisan Congressional Budget Office predicts that the trust fund, if not tampered with, can ensure full benefits until 2052. But whichever set of assumptions you believe, it is obvious that diverting the surplus over the next 12 years – projected at about $600 billion – into private accounts will only hasten the trust fund’s demise. The new GOP proposal has no cuts in benefits, increases in taxes or changes in the retirement age. It thus avoids the political unpopularity that would inevitably accompany such steps – but also fails to do anything to buttress the overall strength of the Social Security fund.
In contrast, Utah Republican Sen. Robert Bennett did outline a plan last week that would strengthen Social Security’s finances through a two-part reduction of benefits.Bennett favors private accounts, but they are not part of his proposal, which does include the plan already outlined by Bush to calculate future Social Security benefits on a sliding scale that would reduce future payments to all but the lowest-paid workers, with higher-paid workers taking the biggest cuts. But Bennett also proposed adjusting yearly benefits to keep pace with changes in life expectancy – potentially reducing future annual benefits to retirees to keep the lifetime payouts constant if those retirees live longer than expected.
A wretched idea
Bennett’s notion of reducing benefits for retirees who may be too old to return to work is a wretched application of a perfectly sound idea. The Post has previously endorsed a far more responsible plan by Sen. Chuck Hagel, R-Neb., to raise the age for full benefits for Americans born in 1966 or later, now 67, to 68. Under Hagel’s plan, early retirement at reduced benefits would still be available at age 62, and disabled workers would receive full benefits regardless of when they stopped working. If needed, retirement ages could be increased further in future years if changes if life expectancy warrant it. It’s one thing to tell a worker in her 30s that she can retire with full benefits at 70, rather than 67. It’s just flat wrong to tell retirees in their 80s who can no longer work that you’re cutting their benefits.
