An all-investor nation?

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Imagine if every worker in the United States had the opportunity to become an investor. Well, that dream has a shot at reality.

In his 2004 State of the Union address, President Bush suggested workers be allowed to redirect part of their payroll taxes into individual retirement accounts (IRAs). That was a big statement. It means there's now a legitimate chance to transform Social Security from a financially bankrupt system into a source of real ownership and prosperity for all Americans.

Many Americans are investors, but not all. Federal Reserve reports 31.6 percent of households owned stock either directly or indirectly in 1989. By 2001, it was 51.9 percent.

Since the Reagan presidency, the U.S. has made great strides toward democratizing capitalism by reducing marginal tax rates, deregulating the financial-services industry and creating savings vehicles like IRAs and 401(k)s. Mr. Bush's latest proposal for Lifetime Savings Accounts is another step in the right direction.

That said, the greatest impediment to saving, investing, creating wealth and retiring prosperously is still the payroll tax -- which now is 12.4 percent. Each payday workers see half of that go to today's retirees as well as many government programs. This depletes household savings and diminishes wealth, leaving too many Americans dependant on the government for retirement income.

When discussing even the idea of personal retirement accounts, skeptics always point to the volatility of the stock market. What they fail to realize is that Social Security is riskier than the market will ever be. The government can at any time raise taxes or cut benefits. Moreover, workers born after 1960 are expected to receive a real rate of return on their payroll-tax contributions of less than 2 percent. Alan Greenspan stated this in 1999; his estimate likely was generous.

This measly return (actually negative for African-Americans, a group with high mortality rates) is not a fair deal for retirees -- today or in the future. Even workers who put their money in standard government-insured savings accounts will earn higher returns than the current Social Security system can provide.

But there's an alternative. According to a study by the chief actuary of the Social Security Administration, a worker with a large personal retirement account can expect a return 60 percent greater than promised under the current system.

A Cato Institute study shows that, even in the worst 20-year period for stocks (1929 to 1948 ) the market's average return was 3.36 percent, better than Social Security promises today.

Dissenters also cite the collapse of Enron as further evidence the stock market is a "risky scheme." To the contrary, the Dow Jones closed at 9,736 the day after Enron's bankruptcy was announced in December 2001. Today it hovers around 10,300.

Investors, who are 2 out of 3 voters, have demonstrated by perseverance amid short-term shocks they know the market is an immense source of long-run wealth. The investor class can vouch for the common sense of personal retirement accounts.

It's interesting that many who adamantly oppose personal retirement accounts already have their personal pensions in the stock market. In fact, state and local governments have been investing pension money in private stocks and bonds for generations. Members of Congress and other federal workers also can invest in private markets. Why can't ordinary people?

They should. IRAs are not a risk, but a historic opportunity to increase prosperity for all.

The question remains "How?" But the Alliance for Retirement Prosperity has an excellent answer. This group -- led by former congressman and Housing and Urban Development Secretary Jack Kemp, former House Majority Leader Dick Armey, and former Social Security Commissioner Dorcas Hardy -- is devoted to enacting legislation to let Americans invest at least half of their payroll taxes in personal retirement accounts.

Their proposal would in effect make the government the plan sponsor, putting appropriate funds on the table and guaranteeing something like a death benefit if individuals lose money over 40 years. In the unlikely fall of market performance below promised Social Security benefits, government provides the difference. If, as is likelier, investment-market performance exceeds Social Security returns, investors pocket the gain.

This plan -- vacant of draconian tax increases or benefit cuts -- is on the money. Today there's a small window of opportunity for transforming Social Security into a vehicle that creates wealth and retirement prosperity for individuals, households and communities. All Americans can have the chance to realize the American Dream if every American becomes an investor and every worker an owner.

Lawrence Kudlow is a nationally syndicated columnist, chief executive officer of Kudlow & Co., LLC, and CNBC economics commentator.