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Social Security

The time has come for an honest and realistic discussion regarding the longevity of our current Social Security system. If left alone, our Federal Social Security program will be in financial crisis relatively soon. That is a fact. The time to save Social Security is not in 15 years when Americans are faced with a severe increase in taxes to pay for an evaporating program and certainly not in 40 years when the Trust Fund is fully exhausted and retiring workers will fail to receive the support they counted on for their post-retirement years. The time to ensure the benefits of tomorrow’s senior’s without reducing those of today’s is now.

Created generations ago during the administration of FDR, Social Security has assisted many American retirees with an additional income stream to help support them after their working years. Originally proposed by President Franklin Roosevelt to be nothing more than a supplemental income base for post-retirees when he said, “The Act does not offer anyone, either individually or collectively, an easy life--nor was it ever intended so to do … they will furnish that minimum necessity to keep a foothold…,” today the trend has become for many seniors to count on their Social Security benefits as the major source of providing for their needs.

The prospects of longevity are based, not on partisan agendas, but on the nature of the system itself. As you may know, Social Security is a “pay as you go” system, in which the benefits of current retirees draw directly from the payroll taxes of current workers. In the infancy of the program’s existence there were 41 workers paying into the system for every retiree drawing benefits. By the end of the 1950s, there were only 16 workers per beneficiary. Today, about three workers pay for each beneficiary. Fewer workers per beneficiary coupled with greater life-expectancy, as well as a higher cost of living for seniors, are very clear signs of a looming fiscal crisis and why reform, is so necessary.

Social Security restructuring must take place to keep this program sustained. In only a few short years, the baby-boom generation will begin retiring. In 2017, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes. By 2041, when workers in their mid-20s today begin to retire, the system will be bankrupt and reach fiscal collapse causing tomorrow’s beneficiaries to receive an estimated 30% benefit cut.

Yes, 2041 is a long time away, and even 2018 seems to be in the distant future, but the longer we wait to reform this program, the more expensive and complicated the modification will become.

There are many in Washington and throughout the nation for that matter, including President Bush and Leaders in Congress, who are aptly discussing Social Security modernization. No specific reforms have yet been agreed upon, but there are guidelines that will be necessary to effectively strengthen Social Security.

First, out of basic fairness, there must be no changes in Social Security for those now receiving benefits or for those who are close to retirement. Seniors who have paid into the system their entire working lives will not see any reductions in payments. Second, we must find a solution that does not increase payroll taxes on American workers. During the program’s lifespan, the Federal government has increased Social Security payroll taxes more than 20 times and yet that has failed to fix the system permanently. We must also remember that every new dollar in federal taxation increases the cost of hiring new workers and puts direct downward pressure on the economy’s ability to grow. A slower rate of growth means fewer new jobs in the economy, fewer new workers paying into the Social Security system and ultimately makes the system insolvent. We cannot tax our way out of this problem.

The most important principal to providing true post-retirement security to tomorrow’s seniors is by allowing them the voluntary option of saving a portion of their payroll taxes in a personalized account for their own use during their retirement years. The idea for personalized accounts is not new and is not solely supported by Republicans. In fact prominent Democrats have been positively open to the idea.

At a December 3, 2002 conference of the Democratic Leadership Council, former President Bill Clinton stated, “…one thing you could do is go give people 1 or 2 percent of the payroll tax, with the same options the federal employees have…” – which means much better than the return on Social Security revenues that buy government bonds as IOUs. Former President Franklin Roosevelt, whose brainchild was Social Security, stated as one of his three principals for the program, ”voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.”

There are misconceptions and rhetoric being used about these personal retirement accounts and to have an effective debate, the air must be cleared. First, and most importantly, adding the option of personal accounts for today’s workers will not affect the benefits of today’s retirees. For seniors, nothing will change; nobody is going to take away or reduce their check.

Additionally, voluntary, personal accounts will be a part of a comprehensive solution that will give younger workers the option to save some payroll taxes in a personal account. This will be a nest egg they can call their own, the government can not take it away and it can be a savings they can pass on to their children. Personal accounts will provide Americans who choose to participate with an opportunity to share in the benefits of economic growth by participating in markets through sound investments. Any proposal will include limitations on the risk of investments permitted in personal accounts and will include low-risk, low-cost options like bonds and broad index funds similar to those currently available to Federal employees. Over time, participants can watch their investments grow. Long-term investing experts find that the average return from such investments is almost 7 percent – substantially better than the 1 – 2 percent return today’s workers can expect on money they pay into the current system.

There will certainly be no “rolling of the dice” gambles with these accounts. Guidelines and basic standards of safety and soundness will be set when it comes to investment choices. Also, the money invested into your personal account will only be a fraction of your dedicated Social Security tax. Post-retirees will still be eligible for benefits from the Federal government.

The final criticism associated with Social Security reform, is that the transition cost would be too high. The latest Social Security trustees’ report shows that each year that we wait will add roughly $600 billion to the cost of fixing Social Security for good. That cost is far in excess of any of the so-called transition costs that have been projected for any of the plans put forward thus far.

The Social Security program is important to many Americans, justifying both the imminent need to reform the program, as well as taking our time to get it right. We will not rush into any solutions, the proper time and studies will be made. We will also not be dictated by political rhetoric; the retirement security of millions of Americans is far too important.

Social Security is one of the most popular and most relied upon programs currently administered by the Federal government, but it is in trouble, in fact, it needs to be fixed and fixed now. This is not partisan spin from a politician, it is reality. If nothing is changed, the system will financially unstable. In the past, Social Security has been referred to as the “third-rail” of politics that no one wanted to touch. I commend the courage and foresight of President Bush and Leaders in Congress who are willing to address this important issue. I look forward to working with them to ensure that necessary reforms are made, and that these reforms not only protect the promised benefits to today’s seniors, but also protect the retirement security tomorrow’s seniors will be depending on.

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