By Tom Giovanetti
The good news coming out of the recent government partial shutdown is that Congress has pledged to return to negotiations, addressing some of the serious financial challenges facing the country.
Republicans reportedly will insist that reforms cover both short- and long-term fiscal problems, including entitlement programs reform.
Proposals include the usual litany of ideas: raising the retirement age, changing benefit formulas and means testing Social Security benefits—in other words, nibbling at the edges. While those reforms would reduce the federal government’s costs, they also make Social Security an even worse deal than it already is for those forced to pay into the system. Thanks a bunch.
Whatever happened to personal retirement accounts?
For more than 30 years, personal retirement accounts were the cornerstone of center-right plans for fixing Social Security. Instead of forcing workers to pay into a pay-as-you-go system that gives them a lousy rate of return and no real ownership of their benefits, a portion of the payroll tax would be diverted into personal retirement accounts that would earn near-market rates of return, belong to and be managed by workers, and would (at least in the IPI plan) be guaranteed to deliver at least what Social Security promised (but could not pay).
IPI’s plan was vetted by the chief actuary of the Social Security Administration, and was proposed in the form of the Ryan-Sununu legislation. IPI’s and other variations led to a vibrant policy discussion about transforming Social Security.
That is, until Sen. Lindsey Graham and others cut the legs out from under reformers,insisting that personal retirement accounts were a “sideshow,” and that Social Security needed to be “fixed” for the benefit of the federal government rather than for the benefit of those forced to pay into it.
By undercutting all of the energy behind Social Security reform, Graham helped kill Social Security reform 10 years ago, when it could have been done.
Graham won the debate. Republican proposals today are all about austerity and making a lousy Social Security deal even worse. There’s no discussion of opportunity, empowerment, and a chance for American workers to build wealth through personal accounts.
Meanwhile President Obama is still faulting Republicans for allowing the temporary 2-year, 2 percentage point payroll tax holiday to expire this past December.
So here’s an idea: Let’s drop the personal payroll tax back down to 4.2 percent again, permanently this time, and divert the remaining 2 percent into personal retirement accounts.
Had we taken this approach in 2004, when they were being actively discussed, the median income worker would have over $14,000 in a personal retirement account, assuming they earned the rate of return currently being earned by those fortunate enough to belong to the private retirement account systems in three Texas counties.Many workers would have far more.
C’mon, Republicans. What about personal retirement accounts?
Tom Giovanetti is the President of the Institute for Policy Innovation. You can read more at www.ipi.org.