Good Policy, Good Politics

Pat Toomey

(This article was published in today’s Wall Street Journal; Page A14) Good Policy, Good Politics By PAT TOOMEY Just as Democrats in Congress were congratulating themselves on turning back Social Security reform, a new proposal has dramatically changed the debate. The DeMint-Ryan plan, if passed into law, would mark a giant first step toward personal ownership of Social Security benefits. Moreover, it addresses the Democrats’ main objections to personal accounts. We will now see, in other words, whether congressional Democrats have been debating the issue in good faith, or whether they have ulterior motives. Announced last week by Sen. Jim DeMint, along with several influential House Republicans, the plan is based on the radical idea that our Social Security surplus should actually be set aside for Social Security. As it is, Social Security funds drawn from payroll taxes run a surplus of billions of dollars a year. This coming year it will exceed $80 billion, and before the great demographic shift of 2017 — when baby boomers begin turning 65 — the cumulative surplus will approach $2.2 trillion. In theory, that money is held in trust for future retirees. In practice, of course, the surplus is spent by Congress on programs great and small, turning what ought to be an asset into massive future debt. Under the DeMint-Ryan plan, instead of just gobbling up the Social Security surplus, the government would, in effect, rebate each worker’s share of the surplus in the form of voluntary personal accounts invested in U.S. Treasury bonds. Workers would be sure that their retirement money is safe because it would be stored away in an account that they would own — a true “lockbox” of solid construction, containing assets beyond the reach of politicians. All along, Democrats have argued against personal retirement accounts on the grounds that they carry too great a risk to investors and that the transition to PRA’s would come at too great a cost in additional debt. This plan, however, cannot be caricatured by Democrats as dangerous or reckless, since the risk of long-term investments in U.S. Treasury bonds is minimal. Nor can it be credibly argued that this plan would add to the debt. Federal debt would remain at projected levels. Under the current system, government spends the surplus, and the Treasury department then issues a non-negotiable IOU to the Social Security Administration. Under the new reform, that debt would become a direct, explicit obligation to future retirees — who would now be the owners of solid and negotiable Treasury bills. The great virtue of the plan is that it acknowledges an essential principle: The Social Security surplus is not government’s money to spend. The surplus is created by American workers. And those workers — not the government — ought to own it. Social Security funds, as President Bush used to say, shouldn’t just be your program, they should be your property. It is true that the personal lockbox proposal does not address Social Security’s long-term solvency problem. Nor, at first, would it give young workers a very wide range of options — a diversified equities portfolio that could make for a much larger retirement savings. But partial reform is better than none at all. Taking them at their word, we should now expect members of the loyal opposition in Congress to embrace this voluntary, all-Treasurys no-new-debt option as a sensible first step and the perfect compromise. Democrats, after all, are perfectly happy with the federal government holding the Social Security surplus in U.S. government IOU’s. Why should they object to individual workers actually owning their share of the surplus in interest-earning U.S. Treasury bonds? Combining good policy with good politics, DeMint-Ryan has finally broken up the logjam and put Social Security reformers back on the offensive. In the weeks ahead, Republicans may find that one measured reform can go a long way toward achieving lasting change. And Democrats may find that it was a lot easier to criticize Social Security reform than to vote against it.
Posted by Pat Toomey on June 28, 2005 11:12 AM to Social Security Choice