Jeff Flake (R)
Saving and strengthening Social Security is one of my top priorities. We must do so to live up to our obligation to senior citizens, and also to assure all Americans who are currently paying into the system that it will also be there when they retire. Congress took an important step last year when it insisted that the budget be balanced without dipping into to the Social Security Trust Fund. This, however, is only a beginning and not the end if we are to protect and to preserve Social Security.
The system is challenged because life expectancy in America has changed for the better. When the original system was designed in 1935, it was assumed that the average life expectancy would be 68 years. It has now increased to 76 years and will undoubtedly improve in the future as our health care system makes even more advances. Increased life expectancy, however, is not the only demographic change that challenges the system. The other is the ratio of workers to retirees. Social Security was designed on a “pay-as-you-go” principle, with the payroll taxes of today’s workers being used to pay the current benefits of those who retired. When these workers reach retirement, their retirement benefits would be paid by the others who were still in the work force. In 1945, there were 20 Americans working and paying into the system to support one retiree. Today Americans are having fewer children and fewer people are entering the work force. The ratio has dropped significantly to where there are only three workers for every retired or disabled American. Current population projections suggest that by the year 2033 there will be only two workers for every retiree.
The system is solvent for the present. By 2015, however, for the first time Social Security will have to pay out more in benefits than it will take in payroll taxes. There are five proposed options to address the problem of the system’s solvency. They are: (1) reduce benefits, (2) raise Social Security taxes, (3) raise other taxes and fund the program from general revenue, (4) raise the age at which citizens become eligible for benefits (the age of eligibility for full benefits is already scheduled to increase gradually to 70 in the coming decade), or (5) increase income to the Social Security Trust Fund through higher returns on investment.
While all of these options are “on the table,” I believe that our best option to ensure solvency is to increase the value of the Social Security Trust Fund-option five. As a practical matter, the adoption of this approach means allowing workers to invest a portion of their payroll taxes, probable between one-sixth or one-fourth or two to three percent, in private equities that have historically yielded rates of return more than triple the current return on Social Security investment. A bipartisan consensus is developing and supported in public opinion polls that each citizen should have his or her individual Social Security account to be invested in private securities. The individual, not the federal government, would direct these investments, subject to strict guidelines to ensure safe investments. The federal government’s Thrift Savings Plan for its own employees serves as a successful model for this type of safe securities-based retirement planning. By adding significantly improved returns to other revenues like the rest of the FICA taxes, the Social Security surpluses while they last until 2014, and the application of income tax revenues resulting from this increased investment, we should be able to guarantee full benefits for all retirees in the years ahead. Unlike the existing Social Security program, which cannot possibly guarantee the benefits it promises, the addition of personal retirement accounts will guarantee existing benefits for all generations.
There are those, of course, who distort the framing of the problem and call this solution a risky scheme. Like the proverbial ostrich, they stick their heads in the sand, and need to come up for air and a dose of reality. The only risky scheme is to do nothing. Any change in the Social Security program should be supported by the American people. The election of Governor George Bush, who supports this kind of reform, will provide that mandate. It will strengthen and preserve our very important Social Security system not only for current retirees, but for generations to come.