January 2, 2001 | News Releases on Social Security
WASHINGTON, Jan. 2, 2001-One of the top priorities for the Bush administration should be reforming a Social Security system that faces financial disaster in the not-so-distant future and threatens to shortchange many of today's young workers, a new Heritage Foundation paper says.
Longer life spans, coupled with demographic shifts that will leave fewer workers supporting more retirees, mean that-without comprehensive reform of the program-future generations can expect smaller Social Security checks, writes Heritage senior analyst David John in a chapter from "Priorities for the President," an issue-by-issue policy guidebook for the next administration that will be published by Heritage in late January.
Young workers also will be strapped with annual Social Security deficits as early as 2015, writes John-a cumulative amount of up to $252 billion by 2030 and $516 billion by 2070.
John points out that currently, a two-earner couple-both 30 and both making about $29,000 a year-can expect a return on their Social Security taxes of 1.23 percent. This means they'll each get back about $450,000 in benefits for the $320,000 they paid in taxes. Had they been allowed to invest those taxes in a conservative portfolio of blue-chip stocks and government bonds, they could have earned $975,000 for retirement.
"We can't do it overnight, but our nation needs to catch up with countries like Chile, Sweden, Australia, Great Britain and a host of others who have moved to a system of personal retirement accounts in order to save their own government retirement programs," John says.
Three out of every four U.S. workers pay more in Social Security taxes than they do in income taxes, he notes. Social Security's "contribution," as it's called, has risen from 1 percent of a worker's paycheck to 6.2 percent (combined with 6.2 percent from one's employer), making it harder for workers to come up with the additional income needed to start a retirement fund independent of Social Security.
The next president, John says, must learn both from the current debate on reform and from what other countries have tried. Bipartisan support is essential, he says, and education is key to making sure workers make the most of a reformed system. An effective reform proposal will include the following points:
Benefits for existing retirees must not be cut.
Part of existing Social Security taxes should be used to fund personal retirement accounts.
The amounts that go into personal retirement accounts should be negotiable.
Investment options should be limited keep administrative costs down.
Individuals, not government, should make decisions about investment options.
An appropriate regulatory structure is needed to encourage participation and discourage corruption.
Retirees should have the ability to pass on unused balances to families or other heirs.
Annuities should be used to guarantee a stable retirement income.
Surplus revenue and other resources should be used to pay transition costs.
"The most important ingredient of meaningful Social Security reform is presidential leadership," John says. "The president needs to play an active role in negotiations with Congress that develop his plan, and actively seek support from both parties."
"Priorities for the President" is part of an ongoing series of policy guidebooks published by The Heritage Foundation every four years (with one exception) since 1980. It is part of Heritage's "Mandate for Leadership Project," named for the original policy blueprint that The Washington Post said served as the "bible" of the Reagan administration.