Building security


WASHINGTON -- President Bush began talking about the need for personal Social Security accounts when he was a candidate. He has continued to advocate that we can save Social Security by using the power of the market to increase savings far better than government can.

Now Rep. Paul Ryan, R-Wis., and Sen. John Sununu, R-N.H., have introduced in Congress what may become the most sweeping, visionary, breakthrough legislation to help enrich working people in my lifetime.

It is well documented that if nothing is done to fix Social Security before the baby boomers retire, payroll taxes would have to increase by 20 percent or retirees would face a 30 percent cut in benefits. The Ryan-Sununu bill would protect, modernize and expand Social Security in a way that would end the tragedy of seniors retiring into poverty.

The bill would allow workers the freedom to choose to shift what they now pay each week in payroll taxes, an amount that is roughly the same as what appears in the FICA box on their pay stub, into their own personal account.

On average, about 6.4 percent of the current 12.4 percent Social Security payroll tax would go into a worker's personal account. Workers could choose from a list of officially approved safe and secure investment funds managed by firms regulated by the government in a system similar to the Federal Employee Thrift Retirement System. This makes the system easy and manageable even for new or less experienced investors.

Under the Ryan-Sununu bill, Social Security would not only stay in permanent surplus, it would achieve the largest reduction in government debt in world history by eliminating the current $11 trillion unfunded liability of Social Security, nearly three times the current federal debt held by the public. The bill does this by replacing the current unfunded liabilities of Social Security with fully funded personal accounts.

In fact, the bill goes a step further by providing a federal guarantee that workers who choose personal accounts would receive at least as much as promised by Social Security, maintaining the federal safety net for retirees provided under current law and taking the risk issue for workers completely off the table. This feature achieves a key Social Security policy goal for most Democrats -- full payment of currently promised benefits.

Saving Social Security from bankruptcy while guaranteeing current benefits without any tax increases -- not only for today's seniors or workers nearing retirement but for anyone in the future -- is more than enough reason to support this bill. But the most powerful argument is that it would pay substantially higher benefits than seniors now get from Social Security.

A recent study by Peter Ferrara, a senior fellow at the Institute for Policy Innovation, showed that personal accounts of 6.4 percent invested half in corporate bonds and half in stocks earning standard long-term market investment returns would provide workers across the board with roughly two-thirds more in benefits than what Social Security promises but cannot pay. An account invested two-thirds in stocks and one-third in bonds would pay workers over twice what Social Security promises today.

But it gets better. Currently, after a working lifetime of paying into Social Security through the payroll tax, workers accumulate zero dollars. Under the Ryan-Sununu bill the chief actuary of the Social Security Administration calculated that within 15 years, working people across the board will have accumulated collectively over $7 trillion in today's dollars in personal accounts.

Over a working lifetime, the average worker with a conservative balanced portfolio invested in both stocks and bonds will have accumulated more than $400,000. Compare that with seniors retiring today who have zero dollars accumulated in the current Social Security system.

Such vast, broad-based wealth ownership would transform America, economically, socially and politically. Capitalism only works when people have capital. For the first time in history, the working poor will have access to wealth creation. Personal accounts will finally give everyone access to the markets that create wealth.

Any amount in the account when the worker dies can be left to loved ones. Every worker would become a personal owner in America's business and industry. There would no longer be a dichotomy between labor and capital because every individual would be both a worker and a capitalist. The personal account would be locked until the worker retired.

This vast new supply of capital would be available for investments in new, growing and established business enterprises. The American economy would take another leap ahead into the 21st century, providing along the way broad streams of new jobs and higher wages.

Finally, a key feature of the bill is that the personal accounts mirror the progressivity of Social Security, allowing lower income workers to devote to the accounts a higher percentage of their payroll taxes than higher income workers. This means that lower income workers would proportionally gain as much from the accounts, or even more, than higher income workers. It would be intellectually dishonest to say the rich do better than the poor under this plan because just the opposite is true.

What Mr. Ryan and Mr. Sununu have proposed is historic. They have fashioned a plan that makes the idea of a personal account option for Social Security not only politically viable but, indeed, politically irresistible.

Newt Gingrich, a former speaker of the House of Representatives, is the author of Grant Comes East (St. Martin's Press) and is senior fellow at the American Enterprise Institute.

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