September 25, 2003

September 25, 2003 | Commentary on Social Security

Protecting the Future

Getting people to agree there's a problem usually isn't difficult. Getting them to agree on a solution, though, can be a problem.

Consider two of the trickiest issues we'll face over the next 10 years-the sister entitlement programs, Social Security and Medicare. Both are going broke, according to their own trustees. Social Security will start running in the red in 2018. Medicare's critical Hospitalization Trust Fund will start paying out more than it takes in even sooner-just 10 years from now.

In Medicare's case, lawmakers are close to passing a measure that actually would make the problem worse. Instead of fixing the program, each house of Congress has passed a bill to add a $400 billion drug benefit to Medicare. The new entitlement would make the program even more expensive. Plus, the Congressional Budget Office estimates that 37 percent of retirees who now have employer-sponsored coverage would lose it and be dumped into the Medicare plan.

However, when it comes to Social Security, there's a good plan on the table that would begin real reform: KidSave accounts.

Retired Senator Robert Kerrey, D-Neb., first proposed KidSave in 2000. The late Sen. Daniel Patrick Moynihan, D-N.Y., Sen. Charles Grassley, R-Iowa, and Sen. Rick Santorum, R-Pa., co-sponsored the bill.

Under the plan, every child would receive a $2,000 loan from Social Security at birth. The initial amount of the loan would be increased each year to account for inflation.

Parents would choose from one of three safe investment options, which would provide slow but steady growth. Plus, they could deposit an additional $500 annually until the child turns 19. Even without any additional deposits, the initial loan could grow to more than $50,000 by the time the child reached retirement age. That's a nice nest egg.

One advantage of the plan is that the holder couldn't withdraw any money until retirement. That guarantees the account will grow untouched for decades, so a sizable amount will be on hand when the account holder stops working.

Beginning when the holder reaches age 30, the government will reclaim the amount of the original loan and return it to the Social Security trust fund in five yearly payments.

And unlike traditional Social Security, the KidSave money would belong to the account holder. Right now, if Cousin Harry dies before becoming eligible for Social Security benefits, the government simply marks that account "Paid In Full" and closes it out. Therefore, Harry's relatives have no access to any of the Social Security tax money Harry paid over the years.

With KidSave, the full amount in the account would be available to survivors. That may seem like cold comfort to grieving relatives, but it will have a profound effect over time. It means more money will stay in poorer families, instead of being retained by the government. Eventually, that will allow those families to build wealth.

That's just one way KidSave would help narrow the gap between rich and poor. Another is by simply giving lower-income people the chance to invest in a retirement plan. KidSave would give them a growing investment, without reducing the amount they have available each week to spend on food, shelter and clothing.

Of course, the program could be made even better. Down the road we also should allow each account holder to divert some Social Security taxes into the KidSave account, which will provide a better return than the traditional program.

But the main thing is to get the program up and running. Congress knows there's a problem with Social Security, and KidSave is a simple, fair solution. That's something we all ought to be able to agree on.

Ed Feulner is the president of The Heritage Foundation (heritage.org), a Washington-based public policy research institute.

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