- The Washington Times - Sunday, January 18, 2004

Two roads diverge in 2004, one leading to unprecedented financial opportunity for all Americans and the other to extremely rough financial terrain for generations to come.

The two roads split at the junction of Social Security and the future. We cannot escape the choice, terrifying though it may be to some. The selection we make on Social Security will lead American families either to financial liberty or economic serfdom.

One of the tragic errors of liberalism has been the attempt to solve poverty by focusing on the economic conditions of the poor and bureaucratic solutions instead of how prosperity works. This error is so tragic because the proliferation and expansion of programs has at times exacerbated the very condition intended to be eradicated.

In some cases, the “solutions” made permanent what should have been escapable. Social Security is one example of this tragedy and the choice this year is stark — the “liberal” plan or the Liberty plan.

The liberal solution for Social Security is best exemplified by the new Social Security reform proposal of Peter Dimond of the Massachusetts Institute of Technology and Peter Orszag of Brookings Institution. Messrs. Dimond and Orszag propose saving Social Security with payroll tax increases, benefit cuts for future retirees and new taxes on what they call “high incomes” (think families of firemen, policemen, teachers and others in New York, Pennsylvania, Florida, California and elsewhere).

The Dimond-Orszag plan displays the liberal tragedy in microcosm. Higher existing taxes plus new taxes, plus targeting the “rich” along with benefit cuts will equal the Perpetual Pain Plan, especially for women and minorities. It is a plan for economic meagerness, political miserliness and deeper debt.

As 2003 was winding down, the chief actuary of the Social Security Administration produced an extraordinarily important document that, if understood correctly, could literally change the course of economic history. This document is the official projection of the impact of the Social Security plan advanced by Peter Ferrara, senior fellow at the Institute for Policy Innovation and United Seniors Association policy adviser.

The plan, first published by the Institute for Policy Innovation, is a stark contrast to Dimond-Orszag. It assures full benefits for today’s retirees, modernizes the system with a better deal for workers and their children, pays Social Security’s Everest of debt, and creates personal retirement ownership with no tax increases on workers and no more accounting games. Utopian? No, just solid economics.

Under this U.S.A. Retirement Freedom and Prosperity Plan, workers could choose to fund personal retirement accounts under Social Security, shifting up to 6.4 percentage points of the payroll tax to accounts they own. Benefits from the accounts would substitute for Social Security benefits and a safety net could guarantee what Social Security promises to pay them under current law.

The plan would produce higher retirement benefits than Social Security can possibly deliver, even before the Dimond-Orszag benefit cuts and tax increases. That is because the personal accounts are invested in real private capital, through stocks and bonds that earn much higher returns than Social Security.

The program today never makes any real investments, but merely shifts money around from workers to retirees and bureaucracies.

The original IPI study by Mr. Ferrara illustrated the case of a worker entering the work force at age 23 earning $17,677 per year and receiving an average wage increase each year. Under the U.S.A. Retirement Freedom and Prosperity Plan, she would reach retirement with a personal account holding $334,095 in today’s dollars. That fund would be enough to pay benefits about 70 percent higher than what Social Security promises, but likely cannot pay — $2,653 per month compared to $1,567 under Social Security.

With a higher percentage invested in stocks, the account would pay even more. At standard market returns, the worker would retire with a fund paying her $5,186 per month, more than 300 percent above what Social Security promises. For a couple with comparable incomes, that’s more than $10,000 monthly. Compare that to the Dimond-Orszag promise of benefit cuts and higher taxes.

The chief actuary’s data show that, with an average 6.4 percent going into the new accounts, Social Security payroll taxes eventually could be safely reduced to just 3.5 percent without endangering the program’s finances. That would be the largest tax cut in world history.

Also, the data show that, by providing for future benefits through fully funded personal accounts, the reforms could allow elimination of the $10.5 trillion unfunded liabilities of Social Security, which is 3 times the reported national debt. That would effectively be the largest reduction in government debt in world history.

Finally, through increased savings and investment, and lower taxes, the reform could substantially increase economic growth, resulting in more jobs, higher wages for working people and the end of poverty as we know it among the elderly.

Two options face us in 2004. We can keep the present Social Security Debt Bomb or replace it with a real Wealth Machine for every family. President Bush has set in motion a breakthrough debate by proposing Personal Retirement Accounts owned by U.S. workers under Social Security.

Financial liberty would bring prosperity to America for generations to come — protection for today’s seniors, ownership of our financial futures, much better benefits for our children and grandchildren, lower taxes, economic growth and paying off a mountain of debt.

Which option do you choose?

Art Linkletter is national chairman and Charlie Jarvis is chief executive officer of United Seniors Association and USA United Generations.

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