The Promise and Potential of Smart Social Security Reforms
Opinion Editorial by
Congressman Paul Ryan
Sunday, November 14, 2004
Since entering Congress, I have been working to protect and strengthen Social Security so that it will be ready for the fast-approaching retirement of the baby boom generation. Because the current system does not operate like a typical pension program, the influx of new retirees will put great pressure on Social Security.
Currently, all of us in the workforce pay payroll taxes that fund the Social Security benefits of today's seniors. Due to demographic changes, the ratio of workers paying into Social Security is shrinking. In the 1950s, there were about eight working-age Americans to support one retiree. Today there are three. In fifteen years, the ratio will be two workers per retiree. Looked at another way, it is expected that by 2018 more money will be drawn out of Social Security to pay benefits than will be flowing into the program.
If Washington sticks with the status quo, we will be confronted with some painful options: cutting benefits, raising taxes, or continuously borrowing more money.
Fortunately, there is an alternative. In order to make sure Social Security will live up to its promise for today's seniors as well as their children and grandchildren, Congress must take careful steps to fix the system, while maintaining a strong safety net for all workers.
Earlier this year, I introduced legislation to achieve this goal and give every worker the chance for real ownership of his or her retirement savings - something a future Congress cannot take away.
First and foremost, this proposal would not affect current seniors' benefits, and survivors and disability benefits would continue as under the current system.
This legislation would give workers the opportunity to invest a good part of their payroll taxes in tax-free personal accounts. These accounts will give those who participate a much better rate of return on their investment than Social Security does, while shielding them from major risk. The federal government would back the personal accounts with a guarantee that workers receive at least as much as Social Security promises under current law.
Individuals who choose to participate in personal accounts would have a selection of investment options that are regulated for safety and soundness - similar to the way the Thrift Savings Plan works for federal employees. This quality retirement plan has consistently outperformed Social Security, even in times of recession.
It is very important to remember that, under my proposal, the personal accounts are voluntary. Workers who decide to stay in traditional Social Security can do so and receive the benefits promised to them under current law.
Anyone who takes an honest, careful look at this proposal can see that we are not "privatizing" the system and taking government out of the picture. Rather, we are harnessing the power of the market, while preserving government safeguards, and giving every American worker the chance to own real wealth for their retirement.
The Chief Actuary of Social Security - whose job is to evaluate the program's finances and analyze the impact of policy changes - found that this proposal will achieve permanent solvency for Social Security, without benefit reductions or tax increases. In fact, it would bring permanent and growing Social Security surpluses by 2030 and, over a longer stretch of time, reduce federal debt by eliminating the program's $10.5 trillion unfunded liability. The Actuary also concluded that, under this plan, workers would amass roughly $7 trillion in today's dollars in their accounts by 2019, and the payroll tax could be reduced to 4.2 percent.
Another benefit of this legislation is that it would finally achieve the goal of the "lock box" (which never became law due to Senate filibusters). It would separate Social Security and the reform's transition financing from the rest of the federal budget, so Washington cannot dip into that money for unrelated spending.
Today we are facing the best opportunity in years to fix the problems that threaten Social Security and give people - not politicians - greater control over their own retirement security. The President recently said that reforming Social Security will be a priority of his administration. As he put it: "This is more than a problem to be solved; it is an opportunity to help millions of our fellow citizens find security and independence that comes from owning something, from ownership." I look forward to working with my colleagues in Congress, regardless of party, to advance this vital cause.