Schaffer and Santorum on Social Security

Former US Congressman and current Republican National Committeeman Bob Schaffer weaves his own family into a clear, straightforward, and common sense case for Social Security reform:

Our five-year-old daughter Mary was named after her great-grandmother Mary who is in her nineties. It is interesting how critics of President Bush’s plan to rescue Social Security act like we must favor one Mary at the expense of the other if we support the president.

It is a worn tactic perfected by people in Washington, DC who like to avoid responsibility by pitting one group against another. We sure hope it doesn’t work this time.

Improving Social Security must not be delayed. The first wave of baby boomers will retire in three years. Ten years later the system will begin paying out more benefits than it collects in tax revenues.

This imbalance will force politicians to search for other sources of cash to make up the difference. Future Congresses will have few options: They could raise taxes, cut retirement benefits, slash spending, bloat the debt and devalue the currency. Or, Congress can act now to put Social Security on a path toward permanent solvency.

As grandchildren, parents of five and ourselves baby boomers, we don’t need many more reasons to believe future generations should enjoy more secure retirements. But that would require courage from America’s leaders.

When Social Security was created in 1935 Great-Grandma Mary was twenty-one. Back then, there were forty-two workers paying into the system for every retiree receiving benefits. These workers also lived much longer than demographers had predicted.

They had courage. They worked America out of the Depression. They and their kids won World War II. After that they made lots of babies – who, upon entering adulthood, did not make lots of babies.

By the 1950s the number of workers paying in for every senior collecting benefits had fallen to sixteen. Today there are just over three. Sometime after young Mary enters the workforce this ratio will shrink to two workers per retiree.

Great-Grandma Mary paid about 2-percent of her payroll in taxes to the system. Today, we are taxed at 12.4-percent. It is obvious that as time goes on, Social Security is a losing proposition for young Mary and her siblings.

In 1935, the rate of return on Great-Grandma Mary’s investment in the system was a respectable 8-percent. Today, we can expect a dismal 1-percent return on the money we contribute to Social Security. Young Mary will get about a negative-1-percent return on her contribution if President Bush’s critics win the debate.

The president has pledged to make no change to Great-Grandma Mary’s benefit schedule nor any in the soon-to-retire category.

But when it comes to our young Mary, Bush wants to give her a choice between investing a portion of her Social Security payroll tax — about 6 percent on average — into a tax-free personal account, or remaining in the current low-earning system. Those opting for personal accounts would actually own their account and it would be invested within secure parameters for respectable growth.

Ideally, these personal account holders could pass their earnings on when they die to their heirs. Unlike today, the government would no longer be able to raid these funds to finance other spending. As we see it, the goals of higher returns and fixing Social Security’s current problems go hand in hand.

As younger workers’ savings grow in voluntary personal accounts, over time these accounts meet more of Social Security’s financial obligations. Actuaries believe such a plan can restore Social Security surpluses by 2025 and eventually eliminate the program’s $10.4 trillion unfunded liability.

Improving young Mary’s rate of return must be a key part of any Social Security reform plan. Like her great-grandmother, she deserves a secure retirement.

Republican Pennsylvania Senator Rick Santorum wrote last week for National Review, defending his party’s determination and ability to bring about such reform this year. There are a lot of skeptics out there, and with good reason. I’ve about given up hope that a reasonably good Social Security reform package – one with personal accounts – can make it through both houses of Congress in 2005. But maybe, just maybe, we’re “misunderestimating” the President. For the sake of people in my generation and the future welfare of these great United States, I hope the reform comes sooner rather than later. Thanks to great leaders like Bob Schaffer, we can help keep the issue on the front-burner.