July 18, 2005

July 18, 2005 | Commentary on Social Security

Legislative Lowdown -- Week of July 18th

Flashback: During early October 1990, the Senate debated a controversial proposal offered by New York Democratic Sen. Daniel Patrick Moynihan to end the federal government's pernicious practice of using surplus Social Security funds to underwrite other governmental activity. Moynihan wanted to reduce the Social Security payroll tax by an amount sufficient to return surplus Social Security funds to workers.

Not surprisingly, Moynihan's proposal split his party. Several senior Senate Democrats, including Majority Leader George Mitchell (Maine), Appropriations Chairman Robert Byrd (W.Va.) and Finance Chairman Lloyd Bentsen (Tex.), thought the proposal threatened the future of Social Security and vigorously opposed it. Most rank-and-file Democrats, however, backed Moynihan.

Today: A very similar proposal has surfaced and created considerable buzz. Put forward by Sen. Jim DeMint (R.-S.C.), the Stop the Raid on Social Security Act (S 1302) would maintain the payroll tax at its current level, but channel surplus funds-estimated to exceed $80 billion next year-into retirement accounts that workers would own. Echoing Moynihan, DeMint decries spending the surplus on other government programs, saying it transforms Social Security into a "secret slush fund" that breaks the government's trust with workers.

Democrat Reform

Moynihan lost on a procedural motion, but he nevertheless won the support of 54 senators, including 42 Democrats. Among those voting to bring the proposal to an up-or-down vote were several current party leaders, including Sen. John Kerry (Mass.), ranking Senate Finance Committee Democrat Max Baucus (Mont.), ranking Senate Budget Committee Democrat Kent Conrad (N.D.) and moderate Sen. Joe Lieberman (Conn.).

They were joined by a junior senator from Nevada who spoke glowingly of the Moynihan plan: Harry Reid. Yes, the same Harry Reid, now Senate minority leader, who last month denounced the DeMint plan and its House counterpart as "nothing more than political gimmicks" that "would make matters worse."

This despite the fact that Moynihan's proposal was more generous. Under Moynihan, not only would workers receive back their portion of surplus Social Security taxes, they would be allowed to use them any way they desired. The DeMint plan, by contrast, would severely limit the use of the surplus, requiring workers to invest them in personal accounts comprised solely of government-issued securities.

Harry Reid's Flip-Flop

Reid's 1990 arguments on behalf of returning the Social Security surplus to workers are significant, given his current stature. Here is what he said:

"I practiced law before coming to the Senate. Like most attorneys who have an office practice where they deal with clients who have problems, I had a trust fund set up for my clients. If there were ever a time where money came into my office that was my clients' money, that money had to go into a trust fund.

"We had to make sure that money went to the client. That money could not be used to make car payments for me, house payments for me, or buy a present for one of my children. That money could only be used for the purpose for which it was placed in that trust fund.

"The same basic rule should apply to the Social Security trust fund. Those moneys should be used only for the purpose for which the money is collected. If, when I practiced law, I violated that trust, I could be subject to disbarment....In fact, I could be criminally prosecuted by the district attorney.

"In the instance of the Social Security trust fund, those moneys are used for purposes other than for Social Security recipients, and that is wrong. But here in Congress, we have become pretty careless and callous in what we do with trust fund moneys. …

"Are we as a country violating a trust by spending Social Security trust fund moneys for some purpose other than for which they were intended? The obvious answer is yes.

"The President … along with members of Congress, is not being brought before a bar association for purposes of disbarment or some type of administrative remedy. There is no prosecuting authority saying what you have done is illegal. But the fact is it is wrong....

"The trust funds resources are there for the well-being of those who have paid into the Social Security system. We should use those resources to see that Social Security recipients are treated well but also treated fairly and treated equitably.

'Hands Off the Surpluses'

"It is time for Congress to take its hands off the Social Security surpluses. Stop hiding the horrible truth of the fiscal irresponsibility that we have talked about here. It is time to return those dollars to the hands of those who earned them-the Social Security beneficiaries and future beneficiaries....

"Maybe what we should do in conjunction with the President to really carry this conspiracy to its appropriate end is, rather than having it called the Social Security trust fund, why do we not change it and call it the 'Social Security slush fund'?"

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