December 20, 1999

The Candidates and Social Security

by Michael Tanner

Michael Tanner is director of the Project on Social Security Privatization at the Cato Institute.

Looking for a "big issue" in the upcoming presidential campaign? How about Social Security? Composing roughly 23 percent of the federal budget, Social Security is not just the largest U.S. government program but the largest government program in the world. Social Security affects nearly every American in some way. Approximately 40 million seniors receive Social Security benefits, and all American workers must pay 12.4 percent of their incomes into the program. Indeed, nearly 80 percent of American workers pay more in Social Security taxes than in federal income taxes. For most low- and middle-income families, the Social Security payroll tax is the largest tax they must pay. How is that for big?

The candidates need to pay attention to Social Security. The program is facing insolvency. Just 15 years from now, in 2014, Social Security will begin running a deficit, spending more on benefits than it takes in through taxes. At that point, the IOU-filled trust fund not withstanding, Social Security will be forced to either increase taxes or cut benefits. Moreover, even if Social Security could pay all its promised benefits, most young workers would receive a poor, possibly negative, rate of return on their taxes. That is, they will end up paying more in taxes than they receive in benefits.

There are other problems with the current Social Security system as well. The program contains a number of inequities -- it penalizes the poor, minorities, and working women, among other groups. Social Security prevents low-income workers from accumulating of real wealth. And, according to the Supreme Court, workers have no legal right to their benefits. That means that, after a lifetime of paying Social Security taxes, a person must depend on the whims of politicians for his or her retirement income. Here is a summary of where the candidates stand on fixing those problems: Steve Forbes has put forward what is perhaps the boldest and most far reaching proposal. Forbes would use general government revenues to guarantee benefits to the currently retired and those nearing retirement, while allowing younger workers to redirect a portion and eventually "the bulk" of their Social Security taxes to individually owned, privately invested accounts. Forbes would thus largely "privatize" Social Security along the lines of the successful program pioneered in Chile and copied by a number of other countries, including Britain and Australia.

George W. Bush has promised to make Social Security reform his top domestic priority and said that he would be willing to "spend political capital" to make reform happen. He has not spelled out the details of his plans for reforming the program but has said that he supports "some form of privatization or personal accounts." In his standard stump speech, Bush says that "we should trust Americans by giving them the option of investing part of their Social Security contributions in individual accounts."

Like Forbes and Bush, John McCain also supports "allowing workers to privately invest a portion of the dollars they would otherwise pay the government in payroll taxes." However, like Bush, McCain has not developed a detailed proposal. In various informal remarks, he has suggested that there should be a national debate on the degree of privatization. The odd man out on the Republican side is Gary Bauer who opposes any form of privatization and defends the current Social Security system as "a good program." This has led to the strange spectacle of Bauer, a conservative Republican, appearing before liberal groups such as the American Association of Retired Persons (AARP), and echoing the Democrat's charges that other conservative Republicans will "destroy" Social Security. Bauer's own proposal calls for a temporary reduction in the payroll tax today, followed by tax increases and benefit cuts in the future.

On the Democratic side, Al Gore has staunchly opposed privatization. Although others in the Clinton administration have sometimes flirted with the idea of individual accounts, Gore has consistently opposed them. Gore has not put forward a plan of his own, but presumably, he supports the Clinton Administration approach of using general revenues to shore up the current program and possibly allowing the government to invest a portion of the Social Security surplus in private markets.

Bill Bradley often talks about his interest in "big ideas," but he has been largely silent on the issue of Social Security. He has said that he is "skeptical" about privatization but has not totally removed it from the table. This is not surprising since one of Bradley's key supporters is Sen.

Bob Kerrey of Nebraska, perhaps the most articulate Democratic advocate of privatization. However, Bradley's "big idea" appears to be encouraging economic growth which he hopes will generate enough revenue to support the current system.

Polls consistently show that most voters support Social Security privatization. A recent Zogby poll showed that by a two-to-one margin, voters were more likely to support candidates who advocated privatization. Among Republican primary voters, the margin was closer to three-to-one, but a majority of Democrats also supported privatization. In a campaign crying out for big issues, there are few bigger than Social Security. Before people vote, they should find out where their candidate stands.