Sunday, August 21, 2005

True Social Security

Grow Accounts for Social Security
Ending the Raid on the Trust Fund with Personal Retirement Accounts

By: Max Pappas, FreedomWorks Policy Director

The movement to allow workers to put a portion of their payroll tax dollars in an account they own and could pass on has taken on new vigor in Washington, DC. A large group of prominent Senators and Representatives, all with their own bills and visions for improving Social Security through Personal Retirement Accounts have put aside their differences to support an idea that has overwhelming popularity across the country: ending the raid on
the Social Security surplus.

As many Americans now know, Social Security currently runs a surplus, but will begin to run a deficit by about 2017. What many have been surprised to find out is that the surplus Social Security is currently bringing in is given to Congress to spend on whatever they want—whether it is the $3,000,000 the federal government gave to the Cal Ripken, Sr. Foundation or the $1,700,000 it paid for the International Fertilizer Development Center. In exchange for these surplus dollars—about $150 billion—Social Security gets IOUs to be
cashed in in the future.

As voters across the country have learned about this, they have almost without exception called for it to end—whether or not they think personal retirement accounts are a good idea.

The Congressmen have listened, and are trying to ending the raid on the trust fund the only way they can—buy putting it in the savings device that Al Gore made famous, a lockbox. But this time, the lockboxes will be individual lockboxes. They’re calling them GROW Accounts, an acronym for the Growing Real Ownership for Workers Accounts Act. Under the GROW Accounts proposal, instead of Congress getting to spend the surplus Social Security
money on whatever they’d like, workers will have the option of putting their share in their own account—their own lockbox.

The Ways and Means Committee’s Subcommittee on Social Security lays out the following details on the GROW Accounts legislation:

1. It’s based on the following principles:

• Social Security taxes should only be used for Social Security.

• The Social Security surplus should not be used to fund other government programs.

• The surplus should not be used to mask the true size of the national deficit.

2. The bill does the following:

• Protects the Social Security surplus.

• GROW Accounts will be created for workers under the age of 55, unless they choose not to participate.

• The Social Security surplus will be dedicated to GROW Accounts, where it will be invested in no-risk, marketable Treasury securities - real assets that workers own.

• Upon retirement, account balances will be used to help pay the worker's Social
Security benefit.

• Account balances are inheritable.

• An independent Board will manage and administer GROW Accounts. In January 2009, the Board will submit a plan to Congress that would allow individuals to diversify into other prudent investment options. Workers can always choose to keep their assets invested in Treasury bonds.

• 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.

Congressmen Jim McCrery (4th Dist.-La.), Clay Shaw (22nd Dist.-Fl.), Sam Johnson (3rd Dist.-Texas), and Paul Ryan (1st Dist.-Wis.), along with Sens. Jim DeMint (R-SC) and John Sununu (R-NH), should all be applauded for taking this important first step toward meaningful reform. It’s time to pass real personal accounts that workers can own and control and pass on to their loved ones.

It would be even better if the proposal allowed workers to put even more payroll tax dollars into these accounts, but this bill is sound in that it contains two key ingredients that must be a part of any good reform proposal. First, it allows individual ownership of Social Security tax dollars and second, it allows the inheritability of the accounts created with these dollars.

The current system lacks these important features. Under the current system, someone can work from age 16 to age 65, paying tens of thousands of dollars into Social Security along the way, and have nothing to pass on if he or she dies at 65. A system with ownership and inheritability of contributions, like the GROW accounts, ends this unacceptable pitfall.

Individual ownership of the surplus Social Security dollars is also the only way to create a real claim on these dollars. Any politician who ever supported the idea of a lockbox should be a strong supporter of this new plan, which creates individual lockboxes.

GROW Accounts also put opponents of Social Security reform in an interesting position: do they really want to be on the record for voting against ending the raid on the Social Security trust fund? That would make for an interesting campaign ad next fall.

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