- The Washington Times - Wednesday, December 22, 2004

AARP, the planet’s largest “liberal” lobby, now openly opposes President Bush on Social Security. It could be a fatal mistake to fight his efforts to give workers the freedom to choose a better deal.

In a letter to members, the organization flatly opposes allowing workers the freedom to choose to shift some of their Social Security payroll taxes into personal savings and investment accounts that would pay part of their future retirement benefits.

AARP fails to recognize that Social Security no longer is a good deal for working people today, the children and grandchildren of its members. For most of these workers, even if Social Security could somehow pay all its promised benefits, the real rate of return represented by those benefits on taxes paid into the program would be 1 to 11/2 percent or less. For many it would be zero or even negative.

Workers would now get a much better deal saving and investing in personal accounts. Let’s look at how one concrete reform proposal would work, the legislation introduced in Congress by Republicans Rep. Paul Ryan of Wisconsin and Sen. John Sununu of New Hampshire.

That bill would allow workers to save and invest roughly the amount in their FICA box each paycheck in their own personal account, which they would directly and individually own just like their IRAs or 401(k)s. A study by Peter Ferrara of the Institute for Policy Innovation showed workers investing through such accounts over their lifetime half in stocks and half in bonds and earning standard market investment returns would retire with enough money in their accounts to pay about two-thirds more than Social Security promises, but cannot pay. If they invested two-thirds in stocks and one-third in bonds, at standard returns their accounts would be able to pay them about twice what Social Security promises.

AARP argues “the guarantee Social Security provides is one worth strengthening, not replacing.” But the U.S. Supreme Court has explicitly held that under the law Social Security benefits are not federally guaranteed. In the case of Fleming vs. Nestor decided in 1960, the Supreme Court ruled Congress retains the power to cut some or all Social Security benefits to some or all workers at any time.

In contrast, the Ryan-Sununu bill does include an explicit federal guarantee all workers would receive the full benefits promised under current law, whether they choose the personal accounts or choose to stay completely in the current Social Security framework. The bill thereby provides a better and fuller safety net than the current system.

AARP argues that if workers are allowed to shift some of their payroll taxes into personal accounts, the current system would lose money and be weakened. But under the Ryan-Sununu bill, as in any personal account plan, trillions of dollars of new funds are put into an expanded and modernized Social Security framework, to ensure all promised benefits, and ultimately more, are paid. These funds come from the much higher investment returns that would be earned through the personal accounts and from federal general revenues not now used for Social Security.

AARP embraces a fallacy when it says this new funding means personal accounts are expensive. The transition financing under such reform represents the money going into the personal accounts of working people all over the country. With that money, and the accumulated investment returns, after just the first 15 years under Ryan-Sununu, workers would have accumulated $7.8 trillion in today’s dollars in their personal accounts, according to the official score of the bill by the chief actuary of Social Security.

Moreover, in the process of such reform, the current $10.5 trillion unfunded liability of Social Security would be eliminated. Transition financing for personal accounts would be much less, eliminating this huge debt and leaving workers with trillions in personal account assets and higher benefits.

AARP advocates instead raising taxes and forcing all state and local government workers into Social Security. But these solutions are more of the AARP same. AARP went along with taxation of Social Security benefits adopted in 1983, and with 1993’s sharp increase in those taxes. It has not supported repeal of the death tax and reduced capital gains taxes, which would both greatly benefit seniors. AARP represents its political interests in Washington, not retirees.

Republicans and other personal account advocates would be foolish to let AARP dictate policy on personal accounts. AARP is all bluff and bluster. For more than a decade, polls have consistently shown overwhelming public support for personal accounts — in the range of two-thirds or more. This support cuts across party lines, and is particularly strong among Hispanics and African Americans. The support has been borne out in the past three election cycles, where candidates supporting personal accounts have won over and over again.

Let’s not give in to Washington poseurs what we have already won at the grass roots. AARP wants a fight on this issue, and we are going to give it one.

Charles Jarvis is chairman and chief Executive of USA Next United Seniors.

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