- The Washington Times - Monday, February 14, 2005

If the administration and its allies wish to succeed in (re)enforcing personal ownership into the national “old-age” insurance program we call Social Security, then they ought to figure out how to repeat FDR’s successful strategies and not his failures.

Seventy years ago, in the opening session of the 74th Congress, then House and Ways Committee Chairman Robert Doughton introduced H.R. 4120, the Economic Security Act of 1935, which became law the following August. This bill, essentially drafted by FDR’s Committee on Economic Security (established by Executive Order in June 1934), created what we today call Social Security.

A now almost forgotten part of FDR’s bill was Title V, a program to allow all workers (even those not covered) to make voluntary contributions on top of “old age” insurance withholding which they could hold as certificates for redemption as individual annuities upon retirement. (More about this later.)

From the creation of the economic-security panel in June 1934 to the enactment in August 1935, FDR fought many battles over the intent and structure of his programs, and most of those were fought with his allies, not his opponents.

Two of the most bitter fights in which FDR prevailed were his insistence that any old-age insurance program: 1) would not be allowed to use funds from general revenues; and 2) would mandate contributions from individual workers, and not just the businesses that employed them.

These two seemingly disparate policies stemmed from the same core belief that workers who, themselves, had to contribute to an “old-age” insurance program that could not touch general revenues (and thus be labeled a “dole”) would create an individual and “moral” right to future benefits that no future Congress could tamper with.

And he was right.

The Bush administration and its allies are correct in seeing, actuarially speaking, the imminent collision of FDR’s vision and program with history and demographics. And this administration is on the side of preserving the individual and “moral” right, so ably crafted by FDR, to benefits from Social Security.

And here’s how the administration and its allies should go about it.

First, stop being tepid about the problems of Social Security. Be clear and concise about what is going to happen:

1. Starting around 2018, there will be less money going into the Social Security than is coming out. The IOUs sitting in the trust fund will then have to be redeemed with taxes. Yours, your children’s and grandchildren’s. Whether it’s 2018, or 2016 or 2022, it’s gonna happen. And the seriousness of the problem increases the longer it takes to address this.

2. Under current law there are three choices: cut benefits, increase taxes or both.

3. However, if the law is reformed, the choices can be expanded, the promises to those who are retired or soon-to-retire kept and FDR’s promise of an individual “old age” insurance program that works can be restored.

Next, engage in a 21st Century Contract with America, from the administration and each and every individual member of Congress to do the following:

• No benefits under current law will be changed for any retiree currently receiving Social Security.

• No benefits under current law will be changed for any worker within 10 years of retirement age (i.e., age 55).

• Individual investment accounts will be individually owned and controlled, and their assets can never be touched by future Congresses.

Take this pledge to the people and ask every member of Congress to sign this pledge and do so in his or her congressional district.

Next focus on three words: individual, ownership and inheritance.

Follow FDR’s lead. He passed a massive federal social program in a culture that was not comfortable or, even on speaking terms with, national social “welfare” programs. Moreover, he was initially opposed on this by core constituencies of the Democratic Party: unions, farmers and other blue-collar voters. How did he do it? By making sure that the program required individual effort and that individual effort would have an individual benefit. It was owned.

The 21st Century Contract with America on Social Security promises that the “old-age” insurance for all working Americans will be owned and controlled by each working American. And each working American will be able to pass on that which they choose to their children. It’s called wealth.

Next, take this debate, in the near term, out of Washington. Focus on the people.

The last election showed that the Bush-Cheney 2004 campaign, and by inference, the Republican Party, finally has a grass-roots base and organization equal, if not superior to, the Democratic Party. That is a historic achievement. Use it.

There are 10 sitting Senate Democrats who are up for re-election in ‘06 who come from states won by the Bush-Cheney campaign (some very decisively) or lost by very narrow margins. That would be a good starting point.

Finally, back to FDR and Capitol Hill. FDR was sure that the issue of individual effort tied to the perception of individual ownership was key to his political success. That’s why he included in his proposal the additional voluntary accounts mentioned above. What happened? Well, it seems that the insurance companies (correctly) saw that a voluntary savings program redeemed as an annuity would put the federal government in direct competition with their business. And they lobbied to kill it. They did, in the House. But it was passed by the Senate. It was deleted from the final conference report when the legislation was enacted.

This can be a clue as to what may happen to this reform effort as it moves through the swamp of the legislative process.

As individual accounts move through the legislative process it is easy to see that many attempts will be made to reassert government control over these accounts. This will occur primarily with investment choices allowed and fees charged for these accounts in the open market under the guise of protecting “old-age” insurance from market dislocation and rapacity.

It can also occur in choices over how accumulated wealth would be distributed. It’s not hard to forecast that an attempt will be made to make sure that any wealth created by individual accounts will need to be annuitized (by law) for its owners. Whether this is done by “nanny state” politicians who wish to protect workers from themselves, or by and with the collusion of insurance companies who wish to capture a market, the attempt will be made.

While some compromises are inevitable, in this and other issues, signers of the 21st-century contract should keep in mind the words: individual, ownership and inheritance.

Donald Morrissey worked on Capitol Hill from 1980-95 . He is now a legislative strategist with expertise in the financial services industry.

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