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Social Security Reform Thursday: Week Twenty-One.


Thursdays are good days for reform, because they fall between Wednesdays and Fridays.

That's why WILLisms.com offers a chart or graph, every Thursday, pertinent to Social Security reform. The graphics are mostly self-explanatory, but we include commentary on some of them where and when necessary.

This week's topic:

Growing Real Ownership For Workers (GROW) Accounts.

Patrick Chisholm, writing in The Christian Science Monitor last week, observed:

If one compares how Social Security is run to how most companies run their retirement plans, the reckless mismanagement of Social Security becomes obvious.

Indeed. Not only does the antiquated Pay-As-You-Go funding structure, imagined by Otto von Bismarck in the 19th century, resemble a Ponzi scheme, but the alleged trust fund only exists on paper, in a filing cabinet in West Virginia. Like the worst imaginable corporate malfeasance, the trust fund is raided-- and cleaned out-- regularly, to pay for the federal government's myriad other programs.

Beginning in 2017, the U.S. Treasury will not have the luxury of raiding the Social Security surplus to fund the burgeoning government leviathan. At that point, the Social Security system will begin paying out more than it takes in, draining the trust fund each year thereafter.


Source: Page 19, 2005 Social Security Trustees Report (.pdf).

The Wall Street Journal explains how Americans could benefit from the protection of the surpluses that Social Security will run for the next dozen years:


DeMint-Ryan would allow workers to create individual personal retirement accounts and place marketable government bonds worth their portion of the Social Security surplus into these accounts. Think of this as creating 140 million "lock box" accounts, one for every American worker. After three years, workers could trade these Treasury bonds and invest instead in higher-return mutual funds containing a combination of corporate stocks and bonds.

We're talking big dollars for most families. The federal government will continue to run surpluses of about $1.2 trillion through 2016 on a cash basis, and some $3 trillion through 2026 if interest on that cash is also counted. The nearby table shows the scale of the annual surplus cash payments, and how much larger they'd be if interest on them were included. The DeMint-Ryan proposal doesn't currently include interest, though we think it would be improved by doing so.

Workers deserve this interest since it is being paid on money that they earned. And if interest were included, workers would get payments into their accounts for 20 years instead of 10. A worker with a $40,000 salary would get an average of 3% of his paycheck deposited in a personal account, or roughly $1,200 a year. A 25-year-old making a median wage, and earning 4% interest, would have an account worth nearly $100,000 by age 67.

Whether or not this "lockbox" legislation is everything reformers want and more is certainly obvious. It's not.

But it does energize the reform process, injecting new life, politically, into a process that, because it is unfolding in Washington, has appeared bogged down for some time now.

Behold, the reanimation of the reform crowd-

First, and perhaps foremost, you have members of Congress, such as Congressman Paul Ryan of Wisconsin:

While this proposal in and of itself would not completely fix Social Security's solvency problem, it is a clear step in the right direction. And it sends a message to the American people that Congress is getting serious about saving the Social Security surplus for their Social Security retirement benefits.

Grover Norquist, of Americans for Tax Reform:

"Too much of this debate has focused on tax increases and benefit cuts. This proposal puts the focus back where it belongs-personal accounts, savings, ownership, and passing along a nest egg to children and grandchildren.

Make no mistake about it-the best option is for younger workers to voluntarily save all of their Social Security in a personal account that they own and control.

GROW Accounts are a good interim first step that allows us to stop talking about tax increases and benefit cuts and start talking about the ownership society."

Andrew Roth, of The Club For Growth
(the Social Security Choice blog has found new life in recent days, a veritable reform Renaissance):

The bill does not impose investment risk on workers and does not harm the Social Security Trust Funds. It does put us on the path to protecting the integrity of the Social Security program by ensuring that Social Security taxes are only used for Social Security.

Lawrence Hunter and Phil Kerpen of the Free Enterprise Fund

The goal of reform is not to make the government’s books balance — it’s to create a better deal for the American worker, something the compromise approach would accomplish with minimal disruption in the financial markets while providing a down-payment on permanent solvency. This compromise plan may not get us all the way there, but it stops the bleeding and starts the healing.

Michael Tanner of the Cato Institute

Mr. DeMint is meeting the Democrats on their own terms. Like a good poker player, he is calling their bluff. If their stated objections are removed, what is it that they are opposed to? The very idea of people owning and controlling their own money?


Mr. DeMint has cleared away all the smoke and mirrors and put that debate straight in front of us. Now let's see which side the Democrats come down on.

Derrick Max, of Generations Coming Together (.pdf)

...we welcome all proposals that will move this process forward, commend those who are offering alternatives, and encourage others to offer their solutions to this growing marketplace of ideas.

Meanwhile, one of the leading Senate Democrats on the issue asserted that Bush must completely renounce all efforts for personal accounts before Democrats are even willing to come to the table:

"They can twist themselves into any pretzel shape they want," said Sen. Chuck Schumer (D-N.Y.). "As long as privatization is on the table, there will be no compromise on Social Security."

This is not a good-faith negotiation. The Democrats' true colors are shining through here.

So, what is the political fall-out here?

1. It's hard to imagine these interim lockbox personal accounts not creating political inertia for a more serious round of reforms in coming years. Once people get a taste of ownership, they will demand more. Once people realize this is not some hair-brained risky scheme, they will demand more.

2. An optimal and permanent Social Security reform package that utilizes the free enterprise system to give younger workers a better return, without the requisite 60 votes in the Senate, simply will not pass a filibuster by Democrats. Not gonna happen. So this just makes the most of the political reality on the ground.

3. Republicans running for Senate in closely-divided states will have a winning issue in 2006. If and when Democrats knee-jerkedly obstruct on the issue of saving the Social Security surplus for Social Security, simply because it's a GOP idea, Republicans running in states and Congressional districts President Bush won in 2006 are going to have a great political weapon with which to clobber the "party of no."

And don't think President Bush won't take part in the bludgeoning. President Bush will go into those states and districts and take down several of those obstructing his agenda himself.

He's done it before, and he'll do it again.

An Exit Strategy?

Is the lockbox legislation part of the exit strategy on Social Security reform? Yeah, somewhat. It's certainly a way to save face and get something tangible accomplished, rather than committing political suicide by cutting benefits (the brussel sprouts) without the delayed gratification of personal accounts (the baking pie in the oven). But it's also a way to inject new life into the issue.

These latest developments do not mean the President has given up on the idea of a permanent solution for Social Security, complete with personal accounts for younger workers, nor should he give up on the idea. In fact, despite misleading headlines, this latest round of legislation DOES CREATE individual Social Security accounts that the federal government cannot take from you and divert toward paying for the bureaucracy.

Reforming one of the Left's favorite legacies of FDR, one of America's largest entitlement programs, was always going to be a painstaking and long-term process. Democrats believed, going into the debate, that they could obstruct their way back into control of Congress. They were wrong.

Now that "privatization" is clearly not included in the latest serious of Republican proposals, if Democrats still "just say no," they very well might be more dense, politically, than anyone ever even imagined.


Previous Reform Thursday graphics can be seen here:

-Week One (Costs Exceed Revenues).
-Week Two (Social Security Can't Pay Promised Benefits).
-Week Three (Americans Getting Older).
-Week Three, bonus (The Templeton Curve).
-Week Four (Fewer Workers, More Retirees).
-Week Five (History of Payroll Tax Base Increases).
-Week Six (Seniors Living Longer).
-Week Six, bonus (Less Workers, More Beneficiaries).
-Week Seven (History of Payroll Tax Increases).
-Week Seven, bonus (Personal Accounts Do Achieve Solvency).
-Week Eight (Forty Year Trend Of Increasing Mandatory Spending).
-Week Nine (Diminishing Benefits Sans Reform).
-Week Ten (Elderly Dependence On Social Security).
-Week Eleven (Entitlement Spending Eating The Budget).
-Week Twelve (Benefit Comparison, Bush's Plan versus No Plan).
-Week Thirteen (Younger Americans and Lifecycle Funds).
-Week Fourteen (The Thrift Savings Plan).
-Week Fifteen (Understanding Progressive Indexing).
-Week Sixteen (The Graying of America).
-Week Seventeen (Debunking Myths).
-Week Eighteen (Debunking Myths).
-Week Nineteen (Reform Needed Sooner Rather Than Later).
-Week Twenty (Global Success With Personal Accounts).

Tune into WILLisms.com each Thursday for more important graphical data supporting Social Security reform. We'll address more myths in future installments.

Posted by Will Franklin · 23 June 2005 11:12 AM


The Democrats will most likely continue approaching the Social Security issue as they do everything! I am not a betting man. If I were, I would wager and say they are going to continue as they usually do. I will assume not much will be done.

Posted by: Jules at June 23, 2005 05:28 PM

I love how the Democrats are demanding that we take EVERYTHING "off the table" before they are willing to negotiate. If we do, what's left to negotiate?


Posted by: Mick Wright at June 23, 2005 07:50 PM

Typical... Nancy Pelosi and the rest of the do nothing Dems. continue business as uaual. . . They would be fired if they worked for a corp. or even a small business! If these Senators did't have such a nice retirement of their own they would see it as a more important matter!

Posted by: Zsa Zsa at June 23, 2005 09:44 PM

IF!, Nancy Pelosi was employed by anyone and conducted herself this way? She would be FIRED! That is what Democrats should be considering for her in the future!

Posted by: josh W. at June 24, 2005 07:36 AM

Mick Wright is right!... Dems. are donkeys! What dim witts..." Dem. Witts " ...
I love this blog! WILLisms.com is a really good place for creative venting. Thanks Willisms!

Posted by: Zsa Zsa at June 25, 2005 08:37 AM