Washington, D.C. – At a news conference on Capitol Hill today, 11 Republican Senators announced new legislation to “Stop the Raid on Social Security.” The new measure protects the Social Security surplus by creating personal savings accounts that workers would own and that would be fully inheritable.
Calling on Congress to “stop the raid and start saving the surplus,” Senators Jim DeMint, Mike Enzi, R-Wyo., R-S.C., Rick Santorum, R-Pa., Lindsey Graham, R-S.C., Mike Crapo, R-Idaho, Tom Coburn, R-Okla., John Sununu, R-N.H., Johnny Isakson, R-Ga., John Cornyn, R-Texas, Trent Lott, R-Miss., and Sam Brownback, R-Kan., announced the introduction of the Stop the Raid on Social Security Act.
“In recent years, Congress has worked to strengthen corporate accountability and enforcement measures against illegal accounting practices in the corporate world. Now it’s time to look at our own accounting practices. This would help restore transparency to our national insurance policy and protect Social Security money from government spending down the road. The managed personal account plan is the best accounting technique to stop the raid on the Social Security Trust Fund and help us move toward long-term solvency,” said Enzi, Chairman of the Senate HELP Committee. “When my grandson retires I don’t want him to say ‘my grampa had a chance to fix Social Security and he didn’t.’ I want him to say ‘my grampa fixed it.’”
The bill works to achieve three goals: 1) the Social Security surplus should only be used for Social Security, not other government programs; 2) Surpluses should be saved in personal accounts that are legally owned by workers; and 3) the surplus should not be used to mask the true size of the national deficit. The proposal accomplishes these goals by walling off Social Security surplus money from other government spending through the creation of personal retirement accounts.
According to the Social Security Trustees, Social Security will run a surplus until 2017. Currently Social Security taxes pay for retiree benefits, as well as benefits for widows, orphans, and the disabled. Any funds left over, known as the Social Security surplus, are used for other government spending. Including interest, Congress has already spent $1.7 trillion of the Social Security surplus since 1985.
The Stop the Raid on Social Security Act would change this practice by directing money from the surplus to fund newly created personal retirement accounts. People under the age of 55 will have personal retirement accounts, or can choose to opt out. The accounts will initially be invested in marketable Treasury bonds. This allows a safe and prudent transition period for the development of personal accounts to protect the Social Security surplus.
An independent board, similar to the one which administrates the retirement plan for Members of Congress and Federal workers, will administer the personal retirement accounts. In January 2008, the board can offer individuals the opportunity to diversify into other prudent investment options. When a person retires, the account balance will be used to help pay Social Security benefits.
According to the analysis prepared by the Office of the Chief Actuary at the Social Security Administration, the plan:
• Saves $792 billion in cash surpluses in personal accounts between 2006 and 2016;
• Attracts universal participation since there is no down-side for workers;
• Rebates surpluses back to workers on a proportional basis. For example, if the surplus amounts to 1.5% of total taxable earnings for all participants, then participants may contribute 1.5% of their taxable earnings;
• In 2006, workers are estimated to receive a 2.2% rebate. Therefore, a worker earning $35,000 in 2006 could contribute $770 to their personal retirement account. If this worker is 25 years of age, invests in government bonds, and retires at age 67, he/she would accumulate over $43,000.
• Holds solvency harmless so that “full scheduled benefits would be payable until 2041…”
• Uses near-term surpluses to make a dent in the long-term cash flow deficit. The present value of future spending reductions would total $519 billion.
Senator DeMint said, “Social Security has been a secret slush fund for Congress for over twenty years. It’s time to stop the raid and start the accounts. American families pay thousands of dollars in Social Security taxes every year, and not a penny is saved for their retirement. Politicians of both parties have been secretly robbing workers’ retirements to pay for other programs. This plan will take the first step toward long-term reform by locking away money today and reducing government obligations tomorrow. This plan will restore integrity to the program and restore trust with the American people about how Social Security is run.”