A Challenge to Both Left and Right on Social Security Reform

Rep. Harold Ford Jr. of Tennessee yesterday released a statement that challenges both the traditional left and the supply-side right. To the left, he says that Social Security reform can be progressive and empowering, and that Democrats shouldn't automatically scorn reform proposals. To the right, he says that Social Security reforms should be paid for -- Republicans cannot finance the large transition costs of reform by wishful thinking.

Statement of Rep. Harold Ford on Social Security Reform, 9/15/03

Social Security is the most successful government program ever. It has kept millions of seniors out of poverty, allowing them to live their retirement years in dignity.

I believe we can improve upon the existing system, which prevents poverty but does not allow low- and middle-income workers to build assets and create wealth. A monthly check can meet basic needs, but it is not a foundation for a comfortable retirement. It provides a measure of security for retirees, but it cannot be passed on to provide financial security for their children and grandchildren. The key to retirement security and upward social mobility is wealth creation.

That is why I have been exploring ideas on reforming and strengthening Social Security with Rep. Jim DeMint (R-S.C.). Rep. DeMint has a proposal that would allow workers to begin building wealth by investing part of their Social Security taxes in individual retirement accounts. The accounts would be administered within the Social Security Administration. His plan is progressive, allowing low-income workers to invest a larger portion of their taxes. It would allow assets to be passed on from generation to generation.

Rep. DeMint and I agree on the need for Social Security reform and on the goal of allowing more workers to build wealth. But the reason I have not yet signed onto his proposal is that we have not found agreement on how to pay for it. And without a way to pay for it, any Social Security proposal will lack a critical measure of credibility.

The challenge is that any plan that allows workers to begin investing now will require an infusion of funds now. That's because under the existing system, current workers' payroll taxes are paid out immediately to current retirees. Rep. DeMint's proposal would allow current workers to direct their payroll taxes to their own retirement accounts. Therefore, without cutting benefit levels or raising payroll taxes - as the DeMint plan promises not to do - the funds that pay for current benefits have to be replaced. Something has to give.

Let's be clear. Some tough choices about financing Social Security are in front of us, whether we establish individual accounts or not. In fact, over the long-term, the costliest option is maintaining the existing system. One of the positive elements of the DeMint plan is that it looks at a 75-year budget window rather than the standard, myopic 10-year window.

Nonetheless, to establish individual accounts, we will have to find at least $437 billion in new money over the next 10 years, and $8.2 trillion over the next 75 years. This might have been easier three years ago, when the federal government enjoyed a $5.6 trillion surplus. But the surplus was squandered.

We are now faced with exploding deficits that will endure for the foreseeable future, including a record deficit of at least $540 billion next year. With an occupation of Iraq that has cost $150 billion and counting, expiring tax cuts that many want to make permanent, a promise to our seniors to pay for prescription drugs, an Alternative Minimum Tax descending on the middle class, the unfunded mandate of the "No Child Left Behind Act," and a host of unmet homeland security needs, it is unclear how we will be able to front the money for individual Social Security accounts.

Designing a Social Security reform plan is the first step, and Rep. DeMint has designed a good one. The next step is figuring out how to pay for it. That's the harder part -- the part that will demand political courage from both Democrats and Republicans, this Congress and this President.

Posted by Jeff Lemieux at September 16, 2003 12:10 PM