- The Washington Times - Wednesday, August 3, 2005

The Democrats last week announced their own plan for personal investment accounts. Substantively, the plan is quite poor and vulnerable. But politically Republicans face real trouble if they follow the badly conceived reform plans the White House still advances.

The core of the Democrats’ Amerisave plan is a matching federal contribution for each dollar workers contribute to their individual retirement accounts, 401(k)s, or similar accounts, up to a federal contribution of $1,000 per year for each worker. The plan would also give employers a tax credit for offering such personal account savings plans.

But the plan would not change Social Security whatsoever and so does nothing to solve the program’s problems. It would leave workers and their employers still paying 12.4 percent of wages into Social Security for a very low return — a zero or even negative return for many workers.

Instead of fixing this increasingly bad deal Social Security offers to today’s workers, it asks workers to dig deeper into their pockets and come up with more money for another retirement plan. What workers and employers already pay into Social Security is more than enough for ample retirement benefits, and enormous retirement savings, if Social Security would just let the money be saved. Moreover, the Democrats’ add-on account outside Social Security does nothing to address Social Security’s looming long-term financial insolvency.

Of course, even some personal account reformers do not understand that as a true personal account option for Social Security expands, the long-term Social Security deficit would be reduced and ultimately eliminated. That intellectual failure cripples the campaign for real personal accounts.

Finally, the Democrats’ plan would create a new entitlement in the promised $1,000 per year federal contributions to everyone’s add-on personal accounts, with no offsetting reduction in future Social Security liabilities. Yet, the federal government cannot remotely fund all the entitlement promises already made through Medicare, Medicaid and Social Security.

But the serious political problem created for Republicans by this Democratic proposal is illustrated by White House insistence last week that Republicans must support so-called progressive price indexing as part of any personal account reform plan. That would substantially cut future promised Social Security benefits for today’s young workers and eventually leave the great majority with a negative rate of return.

So, while the Democrats support a new giveaway plan, the White House insists Republicans support a takeaway plan. The Democratic plan even provides ownership, inheritability and choice, all elements highlighted by the far-too-narrow message of some personal account reformers.

In the end, the public would vastly prefer the Democratic plan over the Republicans’ tiny personal accounts and large cuts in future Social Security benefits.

Now the White House asks Republicans to vote for the largest cut ever in future promised Social Security benefits through price indexing, on a purely partisan basis, as no Democrats back it. This is the kind of “leadership” that has support for “the president’s plan” down to between 25 percent and 30 percent.

In polls, support for personal accounts is still twice that level. We have reached this ridiculous pass because the adult supervision we should have among Republicans is neither mentally engaged on the substance of reform nor fully exploring all alternatives.

The new Democrat plan will be popular and can only be beaten by a more popular plan, not by a political suicide pact. The winning strategy for Republicans is to start with a proposal based solely on personal accounts explicitly designed to give workers a better deal than at present. As those accounts expand in time, workers will get an increasingly better deal. And the Social Security deficit will be reduced to full solvency.

Congressional Republicans need to send this message to the White House: We will achieve solvency by expanding the accounts over time, not by tax increases and benefit cuts. This is the path to political success for a full personal account option. Those who can’t see that are part of the problem, not part of the solution.

Peter Ferrara is a senior fellow at the Institute for Policy Innovation and domestic policy director for the Free Enterprise Fund.

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