- The Washington Times - Thursday, December 13, 2001

Despite complaints that President Bush's Social Security reform commission did not come up with one big fix-it plan to overhaul

the system, the panel's list of options still represents a huge accomplishment.

In one history-making report, the 16-member commission has formally begun the much-needed national debate over how to save the venerable Social Security system and dramatically boost retirement savings and income at the same time. That debate will take place throughout the 2002 congressional elections, leaving the hard work of legislative reforms to the 108th Congress in 2003.

I would have preferred one clear, incremental reform proposal. Still, there is a lot to like in this report, which offers a list of three reform options for Congress to consider. Notably, all of them have one common denominator: Partially privatize the government-run New Deal-era program to let workers get a higher return on their hard-earned money than the paltry 1 percent or 2 percent return most will get in the future.

The commission came to the same overall conclusion that the government's Social Security advisory commission reached several years ago: The only way to save the retirement system from bankruptcy is to invest some of its money in the stock market.

The administration's original strategy for the bipartisan commission was to create a single plan to implement the president's proposal that workers be allowed to put 2 percent of their Social Security payroll taxes into private investment funds that they would own, control and could leave to their heirs.

But Bush political adviser Karl Rove and other White House strategists made a late change in the panel's plans this fall, fearing that one reform plan would make it easier for the Democrats to demagogue it to death in next year's elections.

The result is a broader list of reform choices that will be harder to shoot down. The simplest one would let workers divert 2 percentage points of their payroll taxes into private mutual-fund accounts invested in stocks or bonds or a combination of the two, low-risk "balanced funds."

Another option would apply the brakes to the program's rapidly burgeoning costs by tying benefit increases to the rate of inflation instead of to wages, which historically tend to rise faster.

A third, more complicated option would slow benefit increases as life expectancy rises, offer incentives for Americans who choose to work longer and let workers invest more (up to 2.5 percentage points) in private accounts if they add 1 percent from their earnings.

Whichever approach is taken, the commission's recommendations seek to defuse the expected criticisms that have been leveled by Democratic leaders and their allies in organized labor and the American Association of Retired Persons.

For example, money cannot be withdrawn from individual plans before retirement, thus ensuring that people will still have income when they can no longer work.

Moreover, in the beginning, accounts will be managed by a central government board. And investments would be limited to strong, blue-chip corporate funds based, say, on the S&P 500 stocks, or AAA government or corporate bonds.

Over time, private investment-fund professionals under "prudent man" investment rules would manage the funds, and the menu of investment funds would be gradually expanded.

There will be transition expenses (to be drawn from general revenues) under any reform option, as revenues are diverted into private accounts, but the commission puts this into proper perspective.

"Transition investments in personal accounts are not 'costs,' but investments in a fiscally sustainable Social Security system," the report says.

A few other points need to be nailed down as well in preparation for the barrage of fearmongering attacks these proposals will no doubt trigger in next year's campaigns.

No one will be forced to put any of their payroll taxes into these private investment accounts if he does not want to. Anyone who chooses to stay in the present system will be allowed to do so, backed by the full faith and credit of the federal government.

But a growing majority of Americans support the idea of Social Security investment accounts, knowing they will come out way ahead financially reaping an average of 6 percent or 7 percent a year over their working lives by investing in the American economy.

Meantime, beware of those in Congress who say this is a risky scheme that would be bad for ordinary workers and their families. The little-known truth is that members of Congress are part of a lucrative government pension plan that allows them to invest in stocks and bonds. And, according to federal officials who manage their funds, most of them have put their contributions into equities.

Once enacted, these Social Security individual investment accounts which no doubt will become enormously popular as workers see their portfolios grow over the years are destined to become the biggest anti-poverty program in history.

The commission has come forth with some great wealth-creating proposals to accomplish this. Let the debate begin.

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