Head start for retirement?

On March 22, the Senate defeated an amendment by Senator Jim DeMint, South Carolina Republican, that would have made it possible under the Congressional Budget Resolution for Congress to stop spending Social Security surpluses on other government programs and begin saving the Social Security surplus for future generations. Finance Committee Chairman Max Baucus, Montana Democrat, made it a party-line matter when he waved the bloody shirt of “privatization,” calling the DeMint amendment “smoke and mirrors” to privatize Social Security. Only one Democrat, Claire McCaskill of Missouri, had the courage to buck the party line and vote “yea.”

Far from being smoke and mirrors, the DeMint amendment actually dispelled the government-accounting smog that currently provides legislators cover as they dip into the Trust Fund like thieves in the night. The stop-the-raid amendment would have made it possible under the arcane congressional budget rules for Congress finally to get straight with the American people and stop raiding Social Security to build bridges to nowhere and pay off special interests.

Congress has been raiding the Social Security surplus for more than 20 years. Including interest, Congress has now spent $2 trillion of Social Security money on other government programs since 1984. And then our illustrious elected representatives have the gall to turn around and scaremonger American workers and senior citizens that the system faces financial collapse unless taxes are raised and future benefits cut. No wonder the program’s finances are in horrible shape; Congress spent the money that should have been going to prefund workers’ retirement. Mr. Baucus’ rant against “privatization” is simply a rhetorical scam calculated to keep the pyramid scheme going for yet another generation while the politicians take credit for “saving” Social Security every 20 years or so. Meanwhile, Social Security becomes a worse and worse deal for each new generation of workers.

Congress pilfers the Social Security Trust Fund monies in two ways. First, Congress misappropriates annual payroll tax surpluses directly on other programs. Second, Congress avoids raising tax revenue or borrowing money from the public to pay the Trust Fund the interest it is due by giving it “special-issue” IOUs that do not show up as part of the national debt and are not backed by an adequate dedicated revenue source. This scam is the same as if Congress borrowed the money from the public, paid the Trust Fund the interest and then, as with the excess payroll tax revenue, raided the interest paid the Trust Fund and spent it on other programs, leaving behind the same IOUs.

Anyway you look at it Congress is snatching both the excess payroll tax revenues and the interest and using these Trust Fund monies to spend on everything else but pre-funding workers’ retirement. Mr. DeMint’s amendment would have made it possible to stop this tawdry practice without running afoul of Congress’ arcane budget rules.

Between 2008 and 2026 when the Trust Fund is projected finally to be depleted, Trust Fund assets will increase each year due to interest and excess payroll tax revenues by a sum total of $3.9 trillion. If those monies were compounded at a modest 51/4 percent rate of interest, that $3.9 trillion would compound into a whopping $6.6 trillion by 2026.

If these annual increases in Trust Fund assets no longer were raided and spent on other programs, they could instead be devoted to prefunding a portion of future workers’ retirement. For example, I have urged that these Trust Fund monies be used to allow parents, grandparents and other concerned adults to open a Head Start Retirement Account for any child under the age of 18.

Were Congress to come clean and stop the raid on Social Security, it would be possible to devote the $3.9 trillion in excess payroll tax revenues and interest payments to Head Start Retirement Accounts for the next generation of workers. For the next 17 years, it would be possible to finance these accounts at an annual average level of $2,500 for every child in America under age 18.

By my rough calculations, such a program would allow a child born in 2008 to accumulate a Head Start Retirement Account nest egg amounting to about $80,000 by the time he is 18. Even if not one additional dime is put into that account, if it continues to compound at an annual rate of 51/4 percent (just about what you can get in a bank CD these days) throughout his working career, his retirement nest egg will grow to more than $1 million by the time he retires at age 67 in 2074.

It’s painfully clear that the Congress is not yet prepared to stop playing games and lying to the American people about Social Security. Therefore, it is not too early to begin demanding that presidential candidates take the pledge to stop the raid and give the next generation a head start on retirement.

Lawrence A. Hunter is president of the Social Security Foundation and senior fellow at the Institute for Policy Innovation.