Former Majority Leader Dick Armey Warns of Social Security Crisis

September 2, 2003

As an economist and former Republican majority leader in the U.S. House of Representatives, Dick Armey (R-Pa.) has long supported Social Security reform. Now co-chairman of Citizens for a Sound Economy, Armey is warning that congressional inaction could lead to a crisis. Excerpts of his latest Pittsburgh Tribune Review column, "Who Will Bail Out Social Security?" follow:

"Believe it or not, Congress has set aside nothing to meet future Social Security liabilities. Rather, the federal government collects your Social Security taxes, uses them to pay current beneficiaries, and then spends the remaining surplus on various government programs.

"Instead of setting resources aside, the federal government simply puts special IOUs in the Social Security 'Trust Fund.' As a financial asset, these IOUs are worthless— they are nothing but a breakable promise from Congress. As a result, the entire unfunded liability of the Social Security program is more than $11 trillion. The Social Security 'Trust Fund' is an accounting mirage so bold and audacious that even Enron wouldn't attempt to pull it off.

"Social Security's financial reckoning will come in 2018, when the system will plummet into the red. That's when, according to the Social Security Administration's Trustees' annual report on the health of the program, Social Security will not have enough money to meet its obligations to retirees.

"Once Social Security tips into the red, the government will have to collect on those special IOUs from itself in order to pay benefits. But, the cupboard is bare because the Social Security 'Trust Fund' is simply an accounting fiction. So, in 2018, the government will be forced to either raise taxes, cut benefits, or both. Worse, because all of the baby boomers will be retiring, program finances will deteriorate even faster in the years after 2018.

"Unfortunately, there's no state government to bail out Social Security. That's why we need to act today to prepare for the future and to save Social Security. Politicians who refuse to face this accounting reality are putting our nation's finances and retirement system at risk of a meltdown.

"Fortunately, there is a way out: Social Security reform that creates Personal Retirement Accounts, or PRAs.

"With PRAs, workers paying into Social Security would fund and manage their own accounts, which would contain real assets like stocks and bonds. No IOUs here— we're talking real financial resources. Even under the most conservative scenarios, private accounts will generate greater returns than are expected from the current system.

"That means both higher retirement savings for working Americans and a reduction in Social Security's unfunded liability. Such a system could be very similar to the 401(k) investment accounts that over 40 million Americans now enjoy. Social Security PRAs would make 401(k)-style wealth-building available to all workers. Even better, Congress would not be able to spend PRAs the way it does the Social Security Trust Fund, because the accounts would belong to the workers.

"Congress should have fixed Social Security a long time ago, but too many legislators are happy to demagogue and twist reform into a political scare tactic. Fortunately, a principled new group of elected officials is willing to address this critical issue head on.

"Representatives like Pat Toomey (R-Pa.) actually ran on saving Social Security in 2002, and were elected with strong majorities. In the face of Social Security scare tactics, Rep. Toomey stood on principle and offered his vision for a better future, and the voters agreed. Like much of the rest of the country, Pennsylvania voters showed that they understand there is a Social Security crisis and that we need to set aside real resources to meet future obligations.

"Retirement security is critical for all workers. That's why it is time for Congress to embrace leaders like Rep. Toomey who want to pass PRAs and avoid the Social Security train wreck coming in 2018 and beyond."

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