President Clinton is right to insist that we “save Social Security first.” He effectively pre-empted Republican plans for a major tax cut by announcing in his state of the union speech that future surpluses must be protected until the solvency of the Social Security system is ensured. Smart politics! To Clinton’s credit, he has now set the stage for a serious national debate about reforming Social Security. With the massive baby-boom generation just a few short years away from retirement, the debate is none too soon.
Clinton initiated this national dialogue with an impressive speech at Georgetown University on February 9. He articulated the demographic dilemma that threatens the Social Security system and pledged to the assembled students a solution that was fair to their generation. I attended the speech as a representative of the Concord Coalition, which, along with the American Association of Retired Persons, has been selected by Clinton to host four regional conferences on Social Security’s future. Those conferences will be followed by a high-profile congressional dialogue designed to produce reform legislation next year. I am excited to see presidential leadership on this critically important issue. The president and his advisers are to be applauded for creating a framework and a time frame that will both elevate the debate and accelerate action on Social Security.
The president’s budget continues to spend 90 percent of next year’s Social Security surplus. The best way to “save Social Security first” is to deny the government the opportunity to spend the surplus by granting taxpayers the right to invest the money themselves.
Nonetheless, Clinton’s budget does not go far enough to protect Social Security. In fiscal year 1999, the president’s budget promises a surplus of roughly $10 billion. True, this is the first surplus since 1969. Yet it is the result of a unified budget in which payroll taxes (ostensibly dedicated to Social Security) are being used to cover excess spending in other areas. In fact, the surplus revenues in the Social Security system will total $105 billion in 1999. Thus, the $10 billion surplus in Clinton’s budget is made possible only by borrowing $95 billion from the Social Security trust fund.
Saving Social Security requires a budget that protects all, not just part, of the Social Security surplus. Several years ago, Sen. Pat Moynihan (D-N.Y.) proposed to reduce the payroll tax by 2 percent. I sponsored similar legislation in the House of Representatives. Our premise was simple: Social Security is a pay-as-you-go system. More taxes are being collected than are presently needed to finance the system. Instead of saving the extra monies to pay future benefits, Congress is using payroll taxes to cover overspending in the rest of the budget. Our payroll tax cut proposal was meant to force Congress to come to grips with the raid on Social Security revenues. Needless to say, the legislation was not taken seriously at the time.
However, Sen. Bob Kerrey (D-Neb.) has now come up with an even better idea. Kerrey suggests allowing taxpayers to invest 2 percent of the payroll tax in vehicles similar to the thrift savings plan now available to federal workers. The genius of the Kerrey proposal is that it would end the spending of payroll tax dollars for non-Social Security purposes and move the Social Security system toward a fully funded investment plan, as opposed to a pay-as-you-go system.
Taxpayers are three-time winners under this approach. First, removing excess payroll taxes from the unified budget will force additional reductions in federal spending. Second, the amount invested will almost certainly provide a greater return than offered under the Social Security benefit formula. Finally, the investment will be an asset that can be transferred to heirs if it is not exhausted (unlike Social Security, which provides a decidedly negative return for those unfortunate enough to die early).
Again, the president’s effort to accelerate the debate about Social Security reform should be welcomed by all Americans. However, his rhetoric is not matched by a plan to accomplish his stated goal. The president’s budget continues to spend 90 percent of next year’s Social Security surplus. The best way to “save Social Security first” is to deny the government the opportunity to spend the surplus by granting taxpayers the right to invest the money themselves.