Listen to This, Mr. Archer

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Listening is in vogue these days in Washington. Among the latest to announce a series of "listening sessions" is House Ways and Means Committee chairman Bill Archer (R-Tex.), who plans a series of meetings with his Republican colleagues to discuss his proposal for revamping the Social Security system. Unfortunately, so far Representative Archer has demonstrated a surprising tin ear on this issue. Along with Rep. Clay Shaw (R-Fla.), Archer has put forward a stunningly misguided plan that is both bad policy and bad politics, in many aspects worse than the proposals advanced by the Clinton administration.

But there is still time for the chairman's colleagues to give him abadlyneeded wake-up call. With a little luck, here are just a few things thatRepresentative Archer should be told:

  • Archer-Shaw is a hidden tax increase. The chairman's plan would pumpnearly $2.6 trillion more in general revenue than called for under currentlaw into the Social Security system by 2034. That is roughly the sameamount of new tax revenue as would be collected through a 2 percentincrease in the payroll tax. Shifting the form of taxation from payrolltaxes to income taxes does not mean that it is not a tax increase.Moreover, this new revenue must be paid regardless of whether projectedbudget surpluses materialize. A new entitlement would be created, meaningthat in the event of an economic slowdown that decreases projectedsurpluses, taxes would have to be explicitly hiked.


  • The individual accounts under Archer-Shaw are phony. Advocates ofindividual accounts should not be fooled by their inclusion in thechairman's proposal. Under Archer-Shaw individuals would have no trueownership of those accounts since, at retirement, the individuals would berequired to surrender them to the government in exchange for an annuity.After retirement, there would be no inheritability of the accounts. Ineffect, workers would merely "rent" their accounts rather than own them.Individuals would still have no legal right to their retirement benefits,leaving their retirement security in the hands of politicians.


  • Archer-Shaw does nothing to increase the rate of return that youngworkers will receive from Social Security. Social Security's problems gofar beyond its financial troubles. For example, under current law, futureworkers can expect to receive a rate of return on their payroll taxes ofone percent or less. Many younger workers will actually receive a negativerate of return, less back in benefits than they pay in payroll taxes. UnderArcher-Shaw, the maximum amount that workers could contribute to theirindividual account would be $1,452 per year. An average-wage worker wouldcontribute less than $600. Compounding the problem, Archer-Shaw thenrequires that 40 percent of the funds in the individual account be investedin low-yielding bonds. As a result, almost no one would receive higherbenefits or a higher rate of return than they do under the current program.Indeed, given the use of income tax revenues, the rate of return wouldactually be lower under the Archer-Shaw proposal.

A recent Zogby International poll, commissioned by the Cato Institute,found that by a margin of 55 to 31 percent, American voters supportedtransforming Social Security into a system of individual accounts. Supportfor Social Security privatization cut across party and ideological lines.Privatization was supported by majorities of men, women, blacks, whites,Hispanics and union members. Perhaps even more relevant to members ofCongress, voters said by roughly 2 to 1 that they would be more likely tovote for a candidate who supported privatization.

Chairman Archer's colleagues should ask him why he wants to throwthatpolitical advantage away in pursuit of a Social Security reform plan thatis not really reform.