"He wants to take away your Social Security." John Kerry hasn't uttered these words about President Bush yet -- but he will as his campaign inevitably sinks to the lowest common denominator of Democratic demagoguery.
Bush has made himself more vulnerable to the charge than the average Republican by endorsing Social Security reform in his acceptance speech at the GOP convention. Bush thus demonstrated his willingness to confront the Democratic equivalent of the Brezhnev Doctrine when it comes to entitlements -- once established, entitlements never recede, but only grow larger. Bush dares to imagine something other than a 70-year-old New Deal model for dealing with retirement. If he can create a mandate for something new, his second term could be as consequential domestically as his first term was abroad.
The current Social Security system is on its way to becoming the WorldCom of entitlements. The Social Security Trustees estimate the program will begin running a deficit in 2018. The red ink will amount to $16 billion that year and will climb every subsequent year. Cato Institute analyst Michael Tanner estimates the program's shortfall from 2018 going forward at $26 trillion. Washington, we have a problem. Within the constraints of the status quo, there are only two solutions: cut benefits (which Kerry, of course, rules out) or hike taxes (which everyone rules out, right up until the point the taxes are hiked).
On top of this looming bankruptcy, Social Security is becoming an ever-worse deal for workers. In 1950, there were 16 workers per beneficiary. Now there are three. The rate of return for workers is steadily dwindling. According to the conservative Heritage Foundation, a married family with one earner born in 1932 and two children gets 4.74 percent back on its retirement taxes. The same family with the earner born in 1976 gets less than 2.6 percent, and the return gets smaller for younger families. Even very conservative investments in bonds and stocks would yield returns substantially higher.
Most reform plans would leave the current system for older workers, but give younger workers a choice: Stay in Social Security as it exists now, or opt to keep some amount of their payroll tax to invest and save in personal retirement accounts, in exchange for reduced benefits from Uncle Sam. The transition to this new system in the near term would be financed either by debt or (preferably) spending restraint. But the government wouldn't be incurring any new expenses in the long run, since it is already obligated to pay for the retirement of current workers (young people opting out of the system, in effect, take their retirement benefits early through their reduced payroll taxes).
Liberals have screamed in recent years that Bush has only cut income taxes and not the regressive payroll tax (which funds Social Security and Medicare), but now that Bush supports an idea that amounts to a payroll-tax cut, liberals will attempt to demagogue it into extinction.
Too bad. Roughly 75 percent of Americans pay more in Social Security taxes than in income taxes, according to the Heritage Foundation. From 2 percent 50 years ago (split between employer and employee), the tax has jumped to 12.4 percent now. In 1971, it applied to only the first $7,800 of income; now it applies to the first $84,900. This burden squeezes the ability of people, especially low-income people, to save.
Personal retirement accounts will give people an asset that they themselves own and that government can't take from them. Depending on how the transition is financed, they might well boost national savings, something economists consider key to an economy's health. They will deliver a rate of return to retirees higher than that of Social Security. And they will create a citizenry less dependent on government entitlements and more self-reliant, in the finest American tradition.
To all this, a John Kerry fearful of change and wedded to the status quo will have essentially one response: "He wants to take away your Social Security."