There’s this inaccuracy in politics today that says liberals always favor reform and new ways of thinking and conservatives oppose progress and changes to the status quo. However, a simple comparison of each party’s platforms makes it clear that Republicans have greater ideas for reform. Not only that, but their ideas concerning taxes, Medicare and school vouchers give more control to the individual. Republicans have, in the truest sense of the word, more “liberal” values. If Democrats were truly progressive, they would work with President Bush on Social Security reform, the most urgent and promising reform on the table.
The disastrous future of Social Security is a speeding train coming right at us, but many simply refuse to get out of the way. Even after the election, when everyone agreed that our political leaders needed to reach across the aisle for honest non-partisan dialogue, House leader Nancy Pelosi said that, when it comes to Social Security reform, “Democrats will stand our ground.” Will someone please tell her that Democrats are standing right on the tracks? Why are people stuck on this 70-year-old New Deal legislation? Social Security may have been a good idea then, but it is not a good idea today.
In the current system, when a single male worker with average earnings retires, his real annual return will be 0.86 percent. For people who make over $80,000, their return is negative 0.72 percent. If, for the past 40 years, we had the capital-based system that President Bush is proposing, the average worker would have earned returns of 8.5 percent.
Edward Prescott, co-winner of the 2004 Nobel Prize in Economics, believes that three-quarters of current Social Security contributions should be put into individual savings accounts, and the remaining one-quarter should finance welfare and “increase the labor supply, resulting in higher output and an increase in tax revenues.” The non-partisan Commission to Strengthen Social Security, established by President Bush in December 2001, had a similar plan. It also decreed that “modernization must not change Social Security benefits for retirees or near retirees — payroll taxes must not be increased — and government must not invest funds in the stock market.” But you wouldn’t know this by listening to the Democratic leadership.
The following are good, old-fashioned scare tactics. DNC Chairman Terry McAuliffe said that any reform of Social Security would turn it into “Social Insecurity — that would expose our retirement savings to the whim of the volatile stock market.” Nancy Pelosi said Bush’s plan “would cut the benefits that provide financial security for millions of seniors and the disabled.” And Massachusetts Sen. John Kerry said Bush has “The same bad, old idea of privatizing Social Security and cutting your benefits. That’s not a plan — it’s a rip-off.”
Of course, all of these claims are — at the very least — misleading. Nowhere in Bush’s plan is the taxpayer required to invest in the stock market. It was actually required in Clinton’s attempt at reform for a certain percentage of your paycheck to go into the stock market. But in his plan, you couldn’t even decide what stocks to invest in; rather, a newly formed federal board would determine where to put your money. The conflict of interest here is obvious, and the continual patronization of the American consumer is insulting. We are capable of choosing the investment strategy that fits us best. We don’t need more federal bureaucracy telling us where to put our money.
Under any type of reform, no current retirees would lose their promised savings. The change from a mandatory transfer system to a saving system won’t happen overnight and suddenly leave retirees to fend for themselves. Transition costs to a new system will be around $500 billion over 10 years. While this may seem high, the cost of inaction is far higher. Five hundred billion is a lot of money, until you figure that Social Security will require a total of $27 trillion in additional funding over the next 75 years if nothing is done. In 2018, Social Security will spend more each year than it receives, and the problem will continue to get worse from there. The future numbers are staggering as we continue digging ourselves into a hole. Democrats need to look past the initial cost or else we are going to leave future generations a hole they can’t climb out of.
These ideas of reform aren’t even that revolutionary. Chile, Sweden, Australia, Britain, China, Croatia, Poland and Peru have all reformed their state-run retirement programs. Why is America lagging behind?
In a speech to Congress in 1934, Franklin Roosevelt said, “I am greatly hoping for the repeated promises of private investment and private initiative to relieve the government in the immediate future of much of the burden it has assumed.” Seventy years later, the immediate future is now. We need to face reality. The speeding train is getting faster, and throwing money at it won’t slow it down.
Mike Slater is a sophomore in Jonathan Edwards College.