Retirement prosperity or dependency in the balance

Posted: May 31, 2004 12:00 AM
There is a battle under way for Sen. John Kerry's heart and mind on Social Security. The growth wing of the Democratic Party understands, as did Bill Clinton, that investment in private markets must be at the center of any solution to fix the nation's retirement system. The left wing of the party, however, has another idea altogether, which was laid out in a recent Washington Post column by Ted Halstead and Maya MacGuineas of the New America Foundation.

Halstead and MacGuineas unveiled a proposal for the greatest expansion of the welfare state in the history of mankind -- even larger than Hillary Clinton's plan to nationalize health care. Under the guise of saving Social Security and Medicare as we know them, Halstead and MacGuineas would permanently fund America's two largest retirement programs out of general revenues by abolishing the 15.3 percent payroll tax and replacing it with a so-called "progressive consumption" tax, a new general-purpose tax that aims as much to redistribute income as raise revenue.

By severing the link between retirement benefits and their method of finance, which Franklin Roosevelt insisted upon to preserve Social Security as a retirement insurance program, not the dole, Halstead and MacGuineas would have Kerry turn Social Security and Medicare into the world's largest welfare programs.

Turning Social Security and Medicare into welfare programs would leave all but well-off senior citizens wards of the state. Rich people don't need Social Security; they can pay the onerous payroll tax every payday and endure the pitiful return on investment current Social Security benefits promise but can't deliver-averaging less than 1 ½ percent and actually negative for many African-American males whose life expectancy is 8 ½ years less than white males.

The rich have sufficient excess capital left over after the federal government confiscates more than 15 percent of their wages in payroll taxes to save and invest and provide themselves a comfortable retirement. After low- and moderate-income workers are through paying Uncle Sam the payroll tax, however, most of them don't have any excess capital left to save for retirement. The promise of Social Security is all they have.

Rather than transforming Social Security into a welfare program and increasing seniors' dependency on Washington, we should transform it into a 21st century retirement investment program that sets workers free to save for their own retirement in personal investment accounts and truly generates wealth through our capitalist system democratically.

My first political victory as "back bencher" in the House of Representatives was to help persuade Ronald Reagan to run for the presidency on cutting tax rates across the board based on the Kennedy tax cuts of 1962 and 1963. The Reagan tax rate reductions ultimately helped rescue the U.S. economy from stagflation, i.e., simultaneously rising inflation and increasing unemployment. Economists of the day had thought stagflation was impossible. Working Americans knew better. They saw how inflation was destroying their savings and how inflation-driven bracket creep was pushing them into tax brackets formerly reserved for the rich and in the process reducing their standard of living and perpetuating abject poverty.

Today I am out of politics, but I have joined up with former House Majority Leader Dick Armey and former Social Security Commissioner Dorcas Hardy to fight one last grand political campaign: to give every working man and woman in America the option of redirecting at least half of the payroll tax into personal retirement accounts they own and control. Toward that end, we have created a new nonprofit organization called the Alliance for Retirement Prosperity ( The sole purpose of the Alliance is to enact personal-account legislation before the end of the next Congress to free America's workers from the fear and degradation of becoming a ward of the state in their old age.

Although President Bush ran on the idea of personal retirement accounts in 2000, it has not yet been made an issue in this campaign. Word is, that's because of nervous Nellies within the Republican Party who want to avoid discussion of Social Security all together. Republicans are missing a golden opportunity to embrace a big idea that will captivate and galvanize voters of both political parties -- men and women of all races -- at every income level.

Kerry has also avoided addressing Social Security. He is under enormous pressure from the left wing of the party to sign onto the ill-conceived idea of abolishing the payroll tax and converting Social Security and Medicare into monumental welfare programs. I can't think of anything that would give George W. Bush a greater boost than for his opponent to get behind a proposal that undermines the retirement insurance idea that Franklin Roosevelt championed. At the same time, I shudder at the thought that Kerry might actually make the idea of personal retirement accounts his own. I can't think of anything more likely to revive the Democratic Party and reconnect it with the crumbling New Deal coalition that Roosevelt assembled.

I believe it would be tragic for the Democratic Party to abandon the hope of democratizing capitalism by refusing to give working men and women the ability to own assets, build wealth and prosper in their retirement.

Therefore, I hope Kerry will reject the idea of turning Social Security and Medicare into welfare programs and instead give serious consideration to modernizing our retirement insurance programs through the use of personal accounts.

Very soon, large personal accounts legislation will be introduced in the House and Senate, and the Alliance for Retirement Prosperity will pull together with a host of think tanks and advocacy groups from around the country to ignite a grass-roots campaign to enact the legislation. The idea of an Ownership Society, an Investor Nation where every worker is an owner, is so powerful, so compelling an idea that it will help transform America, democratize our entrepreneurial capitalist system and secure the affections of the American public for any political party that champions the idea.