Ford Backs Off DeMint Bill, Still Open to Individual Accounts

September 23, 2003

Expressing concern over the legislation's short-term costs, Representative Harold Ford (D-Tenn.) has decided not to cosponsor Social Security reform legislation being proposed by Representative Jim DeMint (R-SC). Ford said that he based his decision on a lack of specific measures to pay for up-front transition costs in the DeMint measure. However, the Tennesee Democrat reiterated his interest in individual accounts and said that he is looking at other legislative vehicles, noting that "Rep. DeMint and I agree on the need for Social Security reform. But the reason I have not yet signed onto his proposal is that we have not found agreement on how to pay for it."

DeMint's plan, which he expected to unveil this week, would permit taxpayers to shift a portion of the 12.4 percent in payroll taxes they now contribute to Social Security into individual retirement accounts (IRAs). Low-income workers could earmark as much as 8 percentage points of the 12.4 percent into IRAs, while high-income workers could steer 3 percentage points.

In a prepared statement, Representative Ford said:

"I believe we can improve upon the existing system, which prevents poverty but does not allow low- and middle-income workers to build assets and create wealth. A monthly check can meet basic needs, but it is not a foundation for a comfortable retirement. It provides a measure of security for retirees, but it cannot be passed on to provide financial security for their children and grandchildren. The key to retirement security and upward social mobility is wealth creation.

"That is why I have been exploring ideas on reforming and strengthening Social Security with Rep. Jim DeMint (R-S.C.). Rep. DeMint has a proposal that would allow workers to begin building wealth by investing part of their Social Security taxes in individual retirement accounts. The accounts would be administered within the Social Security Administration. His plan is progressive, allowing low-income workers to invest a larger portion of their taxes. It would allow assets to be passed on from generation to generation.

"Rep. DeMint and I agree on the need for Social Security reform and on the goal of allowing more workers to build wealth. But the reason I have not yet signed onto his proposal is that we have not found agreement on how to pay for it. And without a way to pay for it, any Social Security proposal will lack a critical measure of credibility.

"The challenge is that any plan that allows workers to begin investing now will require an infusion of funds now. That's because under the existing system, current workers' payroll taxes are paid out immediately to current retirees. Rep. DeMint's proposal would allow current workers to direct their payroll taxes to their own retirement accounts. Therefore, without cutting benefit levels or raising payroll taxes—as the DeMint plan promises not to do—the funds that pay for current benefits have to be replaced. Something has to give.

"Let's be clear. Some tough choices about financing Social Security are in front of us, whether we establish individual accounts or not. In fact, over the long-term, the costliest option is maintaining the existing system. One of the positive elements of the DeMint plan is that it looks at a 75-year budget window rather than the standard, myopic 10-year window.

"Nonetheless, to establish individual accounts, we will have to find at least $437 billion in new money over the next 10 years, and $8.2 trillion over the next 75 years. This might have been easier three years ago, when the federal government enjoyed a $5.6 trillion surplus. But the surplus was squandered.

"We are now faced with exploding deficits that will endure for the foreseeable future, including a record deficit of at least $540 billion next year. With an occupation of Iraq that has cost $150 billion and counting, expiring tax cuts that many want to make permanent, a promise to our seniors to pay for prescription drugs, an Alternative Minimum Tax descending on the middle class, the unfunded mandate of the 'No Child Left Behind Act,' and a host of unmet homeland security needs, it is unclear how we will be able to front the money for individual Social Security accounts.

"Designing a Social Security reform plan is the first step, and Rep. DeMint has designed a good one. The next step is figuring out how to pay for it. That's the harder part—the part that will demand political courage from both Democrats and Republicans, this Congress and this President."

Rep. DeMint expressed disappointment at Ford's decision but promised to continue working with the Democratic lawmaker to resolve their differences over financing. He agreed to delay the introduction of his bill until they were able to discuss the matter further, and remains hopeful that Ford's financing concerns will be able to be worked out.

Other Social Security reform advocates were also encouraged by Ford's continuing interest in individual accounts. As Michael Tanner, director of the Cato Institute's Project on Social Security Choice noted, "What counts is not any particular piece of individual legislation, but Representative Ford's call for Social Security reform that boosts wealth creation and individual control."

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