Gathering forces of historic reform

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President Bush last night put personal accounts for Social Security on the top shelf of the national agenda. Few people now recognize how enormous this initiative can be, with powerfully beneficial effects reverberating throughout our economy and society.

But the incredible historic opportunity now on the horizon is recognized by a new coalition of conservative and progressive leaders to be announced today.

The president in his speech made clear he believes the looming problems of Social Security must be addressed now, not put off to just get worse and worse. Moreover, the president said, he means to solve the problems through the positive approach of a personal account option, and all of its advantages for working people, rather than the negatives of tax increases and benefit cuts.

The president emphasized some of these positive themes, pointing out a major personal account initiative would greatly expand and broaden wealth ownership, as well as freedom of choice and control. He also made absolutely clear the reform would involve no change for today's seniors, or anyone anywhere near retirement. The point of the reform is to improve the future for today's younger workers, who suffer the prospects of a sharply deteriorating Social Security program.

Just what this can involve was shown in a recent proposal I developed for the Institute for Policy Innovation in Dallas, Texas, which has now been officially scored by the Chief Actuary of Social Security. Under that proposal, workers would be free to choose to shift out of the current 12.4 percent Social Security payroll tax 10 percentage points on the first $10,000 of income each year, and 5 percent of all wages above that, to the maximum Social Security taxable income. On average, workers will be contributing 6.4 percentage points of the 12.4 percent tax to the accounts.

Benefits payable from the accounts in retirement would substitute for a portion of Social Security benefits based on the degree to which workers exercised the account option over their careers. The personal accounts would be backed up by a safety net providing a federal guarantee that workers with personal accounts would receive at least as much as promised by Social Security under current law. There would be no change in currently promised Social Security benefits of any sort, for those retired today or in the future.

The chief actuary of Social Security has officially scored the reform plan as achieving full solvency of Social Security by 2029, with permanent and growing surpluses thereafter, all without any benefit cuts or tax increases. Indeed, according to the chief actuary's official score, permanent surpluses from the reform plan would be sufficient to reduce the current 12.4 percent Social Security payroll tax to 3.5 percent, instead of it rising to more than 20 percent to pay all promised benefits under the current system.

This would be the largest tax cut in world history. At the same time, because of the sharply higher investment returns that would be earned by real investments in the capital markets, workers with such substantial personal accounts would receive markedly higher retirement benefits in the future.

The official score also showed that through the accounts the personal wealth of working people would be increased by more than $7 trillion in present value dollars. In the process, the reform would eliminate the unfunded liability of Social Security, currently estimated at $10.5 trillion, 3 times the reported national debt. This is the greatest reduction in government debt in world history.

In a letter to the president released today, 25 major conservative leaders urge the president to adopt a personal account reform plan along these lines as his initiative. Those supporting the reform include Jack Kemp, Newt Gingrich, Bill Bennett, Dick Armey, Steve Moore, Grover Norquist, Charlie Jarvis, Star Parker, Lew Uhler, former Social Security Commissioner Dorcas Hardy, David Keene, Jim Martin, Robert Carleson, Richard Rahn, Kellyanne Conway and Morton Blackwell, among others.

Moreover, these leaders are announcing today the formation of a new, Modern Social Security Prosperity Coalition, that will work to enact the reform. Jack Kemp and Dorcas Hardy will be the co-chairs, with Steve Moore as the National Policy Chairman. Grover Norquist and Charlie Jarvis will also have leadership roles.

Now is the time for conservatives, libertarians and progressives to join together to push such historic reform over the top. All of this will be addressed further at the Conservative Political Action Conference later this week.

Peter Ferrara is a senior fellow at the Institute for Policy Innovation, and director of the Social Security Project for the Club for Growth.