Okay, Inez, How Would You Save Social Security?

August 17, 2004 • Commentary
This article appeared on Cato​.org on August 17, 2004.

Predictably, Democratic senatorial candidate Inez Tenenbaum is attacking her Republican opponent Jim DeMint over his proposals for Social Security reform. DeMint would allow younger workers to privately invest some of their Social Security taxes through individual accounts. Tenenbaum calls this a “risky scheme” that would “benefit Wall Street, but is not a good plan for Main Street.” She promises never to “privatize” Social Security.

But beyond the usual rhetoric about Social Security being a “sacred promise” and a vague pledge to restore “fiscal responsibility,” Ms. Tenenbaum tells us absolutely nothing about what she would do to solve Social Security’s looming financial crisis.

Yet Social Security will begin to run a deficit — spending more money on benefits than it takes in through taxes — in less than 15 years, by 2018, according to the last report of Social Security’s trustees. The so‐​called Social Security Trust Fund, which is supposed to help pay benefits until 2042, in reality contains only government bonds, essentially an IOU. While few observers doubt that those benefits will ultimately be paid, the federal government will still have to find the money to pay them.

Overall, Social Security now faces unfunded liabilities in excess of $26 trillion. One has to wonder where Ms. Tenenbaum is planning to get that money.

Actually, it’s all too clear where the money will come from. As former President Bill Clinton pointed out, three are only three options for Social Security reform: raise taxes, cut benefits, or invest privately. Because Ms. Tenenbaum rules out private investment or benefit cuts, she could be accused of implicitly endorsing tax increases. And mighty big tax increases they would have to be, roughly a 50 percent increase in the payroll tax or the equivalent.

Not that financing is the only problem with Social Security. The program already provides today’s workers with a low, below‐​market return on their taxes. The program unfairly penalizes African‐​Americans, working women and others. Workers don’t own their money or have any guaranteed right to their benefits. In short, it is a program crying out for reform.

Jim DeMint’s proposal for Social Security reform is not perfect. It is more complex and more expensive than some experts would like to see. But it would restore Social Security to permanent solvency, and do so for a lower cost than simply propping up the existing program. It would give low‐​income workers and minorities a chance to accumulate real, inheritable wealth. And, it would give workers true ownership and control of their retirement income.

Whatever one thinks of the details of his plan, Rep. DeMint deserves enormous credit for being willing to stand up and face the difficult challenges of Social Security reform. In fact, few in Congress have been as outspoken on the issue.

Former House Speaker Tip O’Neil once called Social Security the “third rail of American politics,” saying it reminded him of the electrified rail in Washington’s subway system. Touch it and your political career died. But unless someone is willing to touch the issue, our children and grandchildren will be left with nothing but a mountain of debt and higher taxes.

That’s why it is so disappointing to see Inez Tenenbaum resort to the tired old political ploy of trying to scare seniors about the threat of “privatization.”

Instead, let’s have an honest debate about the issue. If there are flaws in Rep. DeMint’s plan, it is fair to criticize them. But Ms. Tenenbaum must also tell us what she would do. If she plans to raise taxes to prop up Social Security, she should tell us. If she has another idea, she should share it with us. If she believes that the current program, with all its problems, is the best we can do, she should say so.

This is too important an issue for politics as usual. The people of South Carolina deserve better.

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