Social Security olive branch

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Last week President Bush for the first time put meat on the bones of his proposal to modernize Social Security and save it from financial collapse.

The president's plan would be a financial savior for young workers while safeguarding the benefits for the old. It would allow Americans to take one-third of their payroll tax for Social Security (or about 4 percent of every paycheck) and divert those funds into a personal IRA-type account they themselves would own and control. As Mr. Bush said: "This is money that the government could never take away from you."

By tapping into the power of compound interest, the average American under age 30 could accumulate more than $500,000 in these accounts by retirement age. It is no wonder the vast majority of 18- to 30-year-olds support this plan.

To lure Democrats into this debate, the president suggested a change in the benefit structure to cut back future promised benefits for higher-income and some middle-income workers. Republicans must be careful they don't fall into the left's odious trap of class warfare here. But over time, this proposal would save hundreds of billions of dollars. It would reduce the multitrillion-dollar unfunded liability of Social Security by about half and thus help finance the personal account program.

Although the media have been in a frenzy describing this benefit adjustment as a "cut" in Social Security, here are the facts: Even with this tweaking of how benefits are calculated, real pension payments to retirees would rise steadily over the next 75 years. In fact, when one factors in the half-million dollars workers would receive from their personal accounts, young workers would do substantially better than currently.

Unfortunately, every overture, including this latest one, Mr. Bush has made to the Democrats on Social Security has been rebuffed. The plan to trim future benefits to higher-income Americans would no doubt be warmly embraced by the "class warfare" Democrats as fair and balanced if, say, Bill Clinton proposed it. But Democrats want to play politics, rather than fix the program in a manner is fair to future generations.

All this is to say congressional Democrats have shown themselves incapable of a grown-up discussion about modernizing this debt-laden Depression-era pension program. Do they not understand, or not care, that 80 million Baby Boomers soon will retire and the system could implode under its own weight of unfulfillable promises?

At recent Senate Finance Committee hearings, Democrats merely spewed venom at Mr. Bush's plan to give American workers the financial freedom to own and control their own personal retirement account. It is almost as if the Senate Democrats -- and some feckless Republicans too -- have a hyperallergic reaction against letting workers build private wealth and personal ownership. A cynic might think them so wedded to the welfare state they want Americans dependent on government, even if they would be worse off financially.

The Democrats have always describes themselves as the party of the working class. Yet the greatest beneficiaries of personal accounts for Social Security are precisely lower- and middle-income workers. That was the point the late Sen. Daniel Patrick Moynihan made repeatedly about the advantages of personal accounts. He insisted personal accounts would allow the doorman of the apartment complex to build private wealth and get rich, not just the family living in the penthouse suite.

Study after study has demonstrated black and Latino workers, because they start working earlier and have lower life expectancies than whites, get the worst return from Social Security. For black males, whose life expectancy is actually slightly below the Social Security normal retirement age, the rate of return on Social Security is negative. Where is the justice and fairness in that?

The main attack against personal accounts from congressional Democrats is they are "too risky." But Mr. Bush noted correctly that, even if workers invested in zero-risk Treasury bills in their personal accounts, they would come out ahead. Treasury bills pay 3 percent to 3 percent interest each year, while Social Security pays between 1 percent and 2 percent.

Most important, Mr. Bush's plan for personal accounts is optional. Workers who believe personal accounts are "too risky" are invited to stay under conventional Social Security. President Bush simply gives all Americans the right to decide for themselves. The left still says no. So much for the Democrats being the "pro choice" party.

This fight has only further reinforced the notion Republicans are the reform party in America and that today's Washington Democrats are reactionary obstructionists devoid of any ideas of their own. The only "solution" Democrats have offered for the multitrillion-dollar Social Security crisis is to raise tax rates on the rich. Raise payroll taxes, income taxes, estate taxes, and dividend taxes. And by the way, if you earn more than $90,000 a year, congratulations, the Democrats think you're rich. As ABC's John Stossel would put it: "Give me a break."

Mr. Bush deserves praise for being the first president in recent times with the political courage to try to avert a tsunami of red ink in Social Security over the next 50 years. That is what the voters ultimately will remember about this political tug of war.

The president and reform-minded Republicans may not win this first battle, but they are winning the war. Stay the course.

Stephen Moore is president of the Free Enterprise Fund and a senior fellow at the Cato Institute.