January 18, 2005

January 18, 2005 | Commentary on Political Thought

Legislative Lowdown -- Week of January 17

Remember that Bobby McFerrin song, "Don't Worry, Be Happy"? Critics of Social Security reform certainly do.

Laura D'Andrea Tyson, one of Bill Clinton's top economic advisers, recently dismissed the program's impending implosion in an opinion piece for BusinessWeek. She voiced what has become the common refrain among Washington Democrats on this issue.

"Social Security does not confront a crisis," Tyson wrote. "In fact, its solvency for future generations can be ensured through modest benefit reductions and modest revenue increases." Indeed, Rep. Sander Levin, (D.-Mich.),a senior member of the House committee that will handle any reform bill, echoed Tyson, saying the program faces nothing more than a "challenge."

One solution proffered by Tyson and other liberals to bring Social Security's books into balance is an immediate payroll tax increase of about 2%. As the battle lines are drawn for what promises to be an extended and high-stakes legislative confrontation later this year, it's important to bear in mind just how much unnecessary economic harm this sort of proposal would cause to younger workers.

My colleagues at The Heritage Foundation have pioneered research that allows ordinary Americans to quantify the full extent of that harm. Using the Social Security calculator on our Website, we can assess whether Social Security is a prudent or harmful investment for almost any category of worker.

Liberal Demagogues

Take the example of a 24-year-old worker with an average annual income for that age group of about $25,600. Assuming average life expectancy, that worker never actually receives back what he invests in the system and can expect to receive a negative rate of return of 0.7%. Just to break even in the program, lawmakers would have to reduce this worker's payroll tax.

But, since life expectancies and incomes vary dramatically from one part of America to another, this average rate of return can be misleading. In some communities, where life expectancies are shorter, Social Security represents an absolutely devastating financial arrangement. For members of Congress who are tempted to demagogue the efforts of reformers to provide personal accounts, the following examples are worth a moment of contemplation:

In House Minority Leader Nancy Pelosi's district, which encompasses downtown San Francisco, that younger worker receives a negative 1.5% rate of return on all the payroll taxes he sends to Washington. On Manhattan's West Side, younger workers in the district of liberal Democrat Jerry Nadler (N.Y.) do even worse, where the rate of return registers at negative 2.4%.

But the most tragic examples of Social Security's reverse-Robin Hood effect occur in congressional districts heavily populated by African-American workers. Here we see negative rates of return so high that one wonders how a hard-working young man in an inner-city neighborhood in Baltimore, New Orleans, Atlanta or New York City can ever move up the socio-economic ladder. That the members of Congress who represent them in Washington tend to be the most outspoken defenders of the program that transfers more wealth from low-wage minority workers to affluent whites than any other only adds insult to their economic injury.

The most senior Democrat on the House Ways and Means Committee, the vociferous Charles Rangel (Harlem), and his thoughtful colleague, William Jefferson (New Orleans), will have to defend this arrangement in spite of near-confiscatory rates of return of negative 4.5% for young male workers in their districts. Ditto for young men trying to make it in the South Bronx district of Democrat Jose Serrano, the blighted Washington, D.C., neighborhoods represented by Del. Eleanor Holmes Norton, or the Atlanta constituents of Democrat John Lewis, a civil-rights legend.

As the Social Security reform debate proceeds, reformers hope to find effective ways to alert workers not only to Social Security's shortcomings, but also to the advantages reform brings. African-American audiences in particular react enthusiastically to the feature in all of the leading reform plans that would allow them to transfer unused balances in their personal retirement accounts to their spouses and children. For many struggling low-wage workers, these accounts may be the largest legacy they leave to their loved ones.

Border Security Reprise: The House Judiciary Committee Chairman, Wisconsin Republican Jim Sensenbrenner, will introduce legislation after the inauguration that reassembles some of the border-security provisions jettisoned from the intelligence-reform bill at the 11th hour last month. The legislation will include familiar, but controversial, provisions to require states to toughen their standards for issuing drivers' licenses and close loopholes in our asylum and deportation laws that terrorists have exploited to remain in the U.S., even as they plot attacks against U.S. citizens.

To describe these provisions as popular among House Republicans is an understatement. Sensenbrenner will introduce his bill with the support of more than 100 colleagues. Close observers expect it to pass easily when brought to the floor, perhaps as early as next month. Opposition to these reforms in the Senate, however, remains intense. But, President Bush complicated the equation when he indicated in a recent interview that he intends to invest political capital on behalf of his own package of immigration "reforms" later this year. 
 
Mr. Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.

About the Author

Michael Franc Distinguished Fellow
Government Studies

First appeared in Human Events