Railroad Fund Legislation Bad Precedent for Social Security

July 25, 2000

Next week, the House Ways and Means Committee plans to mark up HR 4844, Railroad Retirement and Survivors' Improvement Act of 2000, sponsored by Rep. Bud Shuster (R-PA) and having 211 cosponsors. Despite its popularity, the legislation's advocacy of government-controlled investment in the stock market would set a bad precedent for Social Security.

The Railroad Retirement System is a federally legislated program providing retirement, disability and survivor annuities to workers employed in the railroad industry. Workers covered under the RRS are exempt from Social Security, though Social Security credits earned under non-railroad employment are honored by the railroad system. Benefits are financed through a combination of employee, employer, and Federal Government contributions The Railroad Retirement system currently faces an unfunded liability of $39.7 billion, but HR 4844 would increase many benefits while reducing contributions.

More importantly, the legislation would establish the Railroad Retirement Investment Trust, which could invest up to $18 billion in taxpayer dollars in the Rail Industry Pension Fund in the stock market. This fund is considered part of the federal budget and is currently invested only in government securities, as is the Social Security trust fund.

This raises the specter of a government-appointed board picking winners and losers in the private sector, with billions of dollars in taxpayer money at their disposal to do so. Experience with government-dictated investment both at the state level and abroad is what caused Federal Reserve Board Chairman Alan Greenspan to so strongly oppose the Clinton administration plan for government investment. Likewise, Vice President Gore claims that Greenspan's arguments swayed him against market investments of any kind for Social Security.

It is ironic that dozens of Congressman who strongly opposed government investment of Social Security funds in the market are open to setting this precedent. For more information on government investment in the stock market, see Michael Tanner's "The Perils of Government Investing."

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