President Bush’s proposed personal retirement accounts are trapped in a mind-numbing symposium on Social Security’s long-term solvency, wage- versus inflation-based indexing of benefits, FICA-tax caps, and other arcana. Before Americans lapse into a collective trance, the president should reinvigorate this debate by promoting his idea as Social Security Choice.
PRAs belong front and center, but they should be tied to a core American principle: Freedom. While the status quo lurches forward on government commands and political controls, Bush’s alternative enshrines individual preferences and decisions. Bush also should let Americans customize their retirement plans based on their unique lifestyles and aspirations.
First, the president cannot stress enough that Social Security Choice will let younger Americans decide whether to remain in Franklin Delano Roosevelt’s 1935 public-pension program or follow Bush into a modern, voluntary system rooted in ownership and control of real assets. Some Americans would stick with FDR. Good. Social Security Choice includes the freedom to embrace Bush’s plan or run the other way.
Second, those who go Bush’s way will see additional choices: where and how to invest their money. The “investment professionals” on Capitol Hill currently take 6.2 percent of Americans’ valued wages. Employers match that figure. Here is how Congress managed that money in fiscal 2004:
The Treasury collected $570.7 billion in Social Security taxes and credited the system with $89 billion in interest, Cato Institute analyst Michael Tanner calculates. Social Security recipients received $501.6 billion in benefits. Rather than flow into PRAs, this $158.1 billion surplus flooded into general revenues. Congress spent those lost wages on everything from corn subsidies to submarines, space exploration, killing terrorists, and Sesame Street.
This hard-earned, instantly consumed cash was not saved for tomorrow’s retirees. Instead, Treasury placed $158.1 billion in Special Issue Treasury Notes in a Parkersburg, West Virginia filing cabinet. Tomorrow’s Congresses will raise taxes, cut benefits, borrow money, or print cash to restore today’s depleted capital. In corporate America, this diversion of funds yields indictments. In Washington, it fuels reelection.
President Bush would liberate younger Americans to move 4 percent of their 6.2-percent payroll taxes from this fraudulent scheme into a variety of brokerage houses. Rather than forcibly “invest” with Congress, Americans should be free to let Ameritrade, Fidelity, or Schwab, among others, handle their portfolios.
Americans would choose further to invest aggressively in stocks, bashfully in bonds, or prudently in both. Money managers offer “life-cycle investing” which places younger clients in riskier but generally more lucrative stocks, then slowly shifts them into typically less profitable but safer bonds as retirement approaches.
The president should go further and liberate Americans to choose when to retire. One now must be at least 62 to receive Social Security benefits. But what if someone would rather retire at 57?
Chileans have enjoyed PRAs since May Day 1981. Five percent stuck with the statist system while 95 percent opened PRAs. They may draw retirement benefits the day their PRAs can purchase annuities equal to half their average wages during their last decade of work, and at least 110 percent of their state-guaranteed pensions. Chileans must invest a minimum of 10 percent of their first $22,000 in wages to retire at 60 for women and 65 for men. Chileans who invest more than this minimum may accelerate their retirement dates. Individual Americans, not Congress, should make such choices. (See former Cato scholar Jacobo Rodriguez’s May 1, 2004, testimony, “Social Security Reform in Chile,” before the Senate Special Committee on Aging. Chile’s government explains its pension system in English here.)
Finally, Social Security Choice would let Americans decide who receives their retirement assets upon death. After annuity purchases, PRA funds may be inherited by loved ones or favored charities. Social Security funds cannot be bequeathed. Its defenders greet this disgrace as silently as tombstones.
Bush is ill-served by Senate Republicans who lately resemble a caucus of soft-shell crabs. The Associated Press reports that they are aching to abandon PRAs “temporarily” to lure obstreperous Democrats to the table. The president–who markets his proposal even as his allies plot surrender–should summon GOP senators, tell them to grow exoskeletons, and fight to give Americans freedom, ownership, and control of their money via Social Security Choice.
span class=”bioline”>–Deroy Murdock, a New York-based columnist with the Scripps Howard News Service, is on the Advisory Board of the Cato Institute’s Project on Social Security Choice.