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Social Security Reform:
Regarding the future of Social Security, I believe Congress has an obligation to consider every option available to address Social Security's impending funding shortfall, including allowing younger workers to establish voluntary personal retirement accounts within Social Security.
Social Security faces an enormous challenge given demographic changes. As you may know, Social Security works on a pay-as-you-go basis, meaning that current retiree benefits are paid by the taxes of current workers. When Social Security was created in 1935 this system worked well. In 1945, for example, there were forty-two workers paying the benefits of each retiree. Today, by contrast, there are only three workers per retiree. By 2035, this ratio will be reduced to two to one. Additionally, Americans are living much longer. In 1940, the average man lived less than thirteen years after reaching age 65. While Social Security today runs a surplus, it is estimated that by 2017 the Social Security system will begin to pay out more in benefits than it takes in taxes. Simply put, the current pay-as-you-go system is unsustainable over the long term given current demographic changes. In order to save Social Security for future generations, taxes must be raised, benefits must be cut or new sources of revenue must be found.
Personally, I believe that any Social Security reform plan should incorporate the following four goals: (1) guaranteed benefits for current and future retirees; (2) no increase in the payroll tax rate; (3) an adequate safety net for the needy and disabled; and (4) voluntary new options for younger workers. Advocates of voluntary personal retirement accounts point out that such accounts would provide the opportunity to save money today to pay benefits tomorrow. Pre-funding benefits in this way would take advantage of better rates of return available from prudent investments in equity and bond markets. This would help to eliminate Social Security's cash shortfall and secure the program for both today's and tomorrow's retirees.
In 2005, Congress considered this issue in greater detail. In particular, the "Growing Real Ownership for Workers Act of 2005," of which I was an original cosponsor, sought to protect the Social Security surplus - the excess taken in from an individual's payroll taxes. It would effectively function like a "lock box," and preserve the surplus for Social Security only. The current Social Security surplus would no longer be used to mask the size of the annual federal deficit.
In addition, on a completely voluntary basis, the legislation would allow individuals to dedicate a portion of their payroll taxes to personalized GROW Accounts, which would be placed in guaranteed, marketable Treasury securities, i.e., real assets that workers would own. When a worker retired, account balances will be used to help pay the individual's Social Security benefit. In addition, the account balance accumulated throughout a worker's lifetime will be inheritable. Eventually, the program will be expanded to give workers more investment options with their individual accounts, in a way that does not impose investment risk on workers, and does not harm the Social Security trust fund.
GROW Accounts represent only one of many changes that should be made to Social Security to ensure long-term solvency. Although other changes will involve difficult choices, Congress is committed to protecting this program for future generations. Sure, it would be easier just to ignore the problem. But that's not the responsible option. In fact, delay just makes any solution more difficult and costly - translating into higher taxes and/or benefit cuts. A recent Social Security trustees' report shows that each year we wait to fix the problem adds roughly $600 billion to the cost of fixing Social Security for good. Congress and the President simply cannot afford to do nothing.
Although I am disappointed that Congress was unable to fully consider changes to the Social Security system in the 109th Congress, I am confident this issue will continue to be debated in the months and years to come. As we move forward in this discussion, I am hopeful that Republicans and Democrats can put aside partisan differences and work to resolve the problems facing the Social Security.
