Will the next president save Social Security?

Posted: Jan 25, 2006 12:05 AM

When President Bush gave his State of the Union Address last year, he painted a stark and accurate portrait of Social Security.

 Fifty years ago, he said, 16 workers paid Social Security taxes for every person collecting benefits. Today, three workers pay taxes for every beneficiary. In a few decades, it will be two.

 "The system, on its current path," Bush warned, "is headed toward bankruptcy."

 To address the problem, he courageously proposed sweeping reforms that would include allowing younger workers to create personal savings accounts (PSAs) with a portion of their 12.4 percent Social Security tax (half of which is paid by employers). He then invested much presidential time and prestige promoting the plan.

 But Bush made serious mistakes in pushing what ought to have been the signature domestic issue of his second term. He tried to split the difference between conservatives, who want a Social Security system based primarily on PSAs owned and controlled by workers, and liberals, who desperately want to maintain the current system where the government owns -- and politicians control -- everyone's Social Security benefits.

 Even as he proposed reform in last year's State of the Union, the president conceded he was open to "limiting benefits for wealthy retirees" (where "wealthy" really means middle class), "indexing benefits to prices rather than wages" (which would reduce promised benefits, because prices increase at a slower rate than wages) and "increasing the retirement age" (so all workers would have to pay taxes longer before receiving benefits).

 Bush also said, "We must not jeopardize our economic strength by increasing payroll taxes." But two weeks later, he told reporters he was open to raising the cap on the level of income subject to Social Security taxes, which last year was $90,000.

 As he bent over backward to appease Democrats, the president ultimately described a Social Security reform that threatened middle-class workers with increased taxes and decreased benefits -- while largely maintaining government ownership of those benefits.

 No wonder his plan went nowhere.

 Two conservatives in Congress, however, never stopped advocating a simple, understandable and effective Social Security reform that would give workers ownership of their own retirement funds. Rep. Paul Ryan of Wisconsin and Sen. John Sununu of New Hampshire are sponsors of a proposal that would give workers the right to choose whether to stay in the current system -- with no decrease in benefits -- or put 6.4 percentage points of their Social Security tax into a PSA invested conservatively in mutual funds.

 Under Ryan-Sununu, all workers with PSAs would be guaranteed benefits at least equal to current Social Security benefits. When a worker retired, he would be required to use funds from his PSA to purchase an annuity that would pay him the equivalent of a Social Security benefit. If he did not have sufficient funds to buy such an annuity, the government would make up the difference. But if he had more than sufficient funds, he could keep the surplus.

 Under Ryan-Sununu, after a lifetime of paying taxes, the worker would be a free man, not a ward of the government. He would own and control his own retirement funds. The government (and younger taxpayers), on the other hand, would be free from the burden of underwriting Social Security.

 This is not a pie-in-the-sky scheme. In an April 20 report, Social Security Chief Actuary Steve Goss determined that under Ryan-Sununu "the Social Security program would be expected to be solvent and to meet its benefit obligations throughout the long-range period 2004 through 2078 and beyond."

 Sununu suffers no delusions about the difficulty of enacting such a plan in the face of unrelenting Democratic opposition and concedes it may require a president elected with a specific mandate to do so. "But even having had a president who campaigned on Social Security," Sununu said, "we saw that the partisan political forces toed the line to sidetrack the bill, to do nothing and to pretend there's not a problem."

 Yet, a new presidential campaign looms just on the other side of November's midterm elections. And its first primary is in Sununu's home state of New Hampshire, where Sununu defeated a three-term Democratic governor in his 2002 Senate race, while campaigning for PSAs.

 "I think it is a message that not only can be part of a winning campaign," he says. "It is a message that resonates with a very large number of people in New Hampshire."