A group of congressional Republicans have revolutionized the Social Security debate, proposing last month to stop the government from raiding the Social Security surplus and use the money instead to start personal accounts.
We finally have a bill that focuses exclusively on personal accounts, without tax increases or benefit cuts.
Currently, the government takes the Social Security surplus each year and spends it. Social Security gets IOUs promising the money will be returned if Social Security ever needs it to pay promised benefits.
The new bill stops this raid by appropriating the surplus to the personal accounts of workers each year. After the first couple of years, during which workers are limited to investing the accounts only in government bonds, workers will be able to choose from a full range of stock and corporate bond funds.
The accounts would then pay holders a proportionate share of future Social Security benefits. Because of higher market investment returns, this will leave workers with slightly higher benefits. Because the accounts would pay some of Social Security’s future benefits, the financial burdens of the program would be reduced. The program’s projected deficits would consequently be slightly reduced as well.
A Dutko poll shows people favoring this idea, 59% to 37%. Other recent polls have shown support for personal accounts alone still around 50%. But a startling USA Today poll showed the public opposing President Bush’s plan 64% to 31%.
Bush had the insight and courage to put personal accounts at the center of the national agenda. But he has been poorly served by a staff that never understood the idea and diverted the Social Security reform effort back into the old, politically disastrous box of tax increases and benefit cuts.
The new bill is sponsored in the House by Social Security Subcommittee Chairman James McCrery (R.-La.) and in the Senate (S 1302) by Jim DeMint (R.-S.C.). Co-sponsorship of the bill by Republican Policy Committee Chairman John Shadegg (Ariz.) is an indicator of House leadership support.
One problem with the new initiative is that the accounts would be small, financed only with the surplus in Social Security taxes over expenditures, which will decline to nothing in just over 10 years. But this problem can be solved by expanding the proposal to cover the total Social Security surplus, which includes the interest on the Social Security trust fund bonds each year. That interest is paid now by issuing new bonds to the trust fund. Those bonds could be issued to the accounts instead, where workers would be free to sell them and invest more broadly.
This total Social Security surplus would finance healthy personal accounts of 3.2 points over the next 10 years. Over time, the accounts could be expanded to roughly the employee share of the payroll tax of 6.2%.