Remember Social Security?

     After making a brief appearance in 2005 and spending 2006 in the wings, Social Security reform took center stage again last week with the inclusion of “personal retirement accounts” in President Bush’s budget proposal.

     Following the delivery of that budget blueprint, Congressional Democrats announced they were no longer willing to discuss reform options. A bipartisan working group being shaped by the Administration to explore solutions to the looming entitlement crises all but fell apart. Unfortunately, ignoring the situation isn’t an option.

     The president’s fiscal year 2008 budget envisions providing resources for voluntary accounts funded by a portion of a worker’s Social Security payroll taxes. Starting in 2012, participants could contribute up to 4 percent of their Social Security-taxable earnings to an individually owned account. In exchange for the opportunity to invest their own money, participants would likely receive less in guaranteed benefits.

     Personal retirement accounts are seen by many as a way to secure the financial futures of millions of Americans without requiring higher taxes or huge benefit cuts. With the retirement of the baby-boom generation and the changing composition of America’s workforce, the government’s own analysts have determined Social Security will be insolvent in less than a generation.

     By now most politically aware Americans have an idea of the problems plaguing the “pay-as-you-go” formula used for funding Social Security benefits. In 1950, there were 16 workers to support every one beneficiary of Social Security. By the time those entering the workforce today turn 65, there will be only two workers supporting each beneficiary.

     As a result of these changes, the current system will not be able to pay the benefits scheduled for future generations without enormous payroll tax increases, huge benefit cuts, or major deficit spending. The Social Security payroll tax, which was once 2 percent, is now more than 12 percent. Economists calculate that under the current system, the payroll tax would have to rise to more than 18 percent if our children and grandchildren are to receive their scheduled benefits.

     Some would say that an extra 6 cents on every dollar of earnings would be “worth it” to save Social Security. Unfortunately, as the bipartisan Concord Coalition’s Director Bob Bixby recently noted in Senate testimony, a tax hike would be “neither an economically sound nor a generationally equitable option. … It would only provide a few more years of positive cash flow to the system.”

     Besides, Social Security’s woes aren’t occurring in a vacuum. Medicare, for example, is already entering the realm of red ink in its Hospital Insurance component, and the whole system is projected to go belly-up within 11 years. This added burden would, if addressed through higher taxes, mean confiscatory income and payroll tax rates that exceed those of most Socialist countries.

     Spending restraint and changes in the way future benefits are calculated will also be necessary to truly “fix” Social Security. Regardless of how the transition to personal accounts is financed – the government might take on temporary debt – most conservatives agree higher taxes are not an acceptable way to finance this process.

     Unwillingness by top Administration officials (including Treasury Secretary Henry Paulson) to agree publicly with the “no higher taxes” principle recently drew ire from conservative circles. In December 2006, a coalition of 41 groups spanning virtually the entire conservative movement urged the president to avoid any Social Security reform deals that would violate his pledge to oppose tax increases. Still, higher-ups tried to entice Democrats to the negotiating table with promises of “no preconditions” for talks.

     With Democrats bowing out of talks now, however, some commentators are predicting that the curtain has irrevocably closed on what would have been an encore season of Social Security reform debates. However, many conservatives are thrilled with the President’s forward movement on personal accounts and are looking to spread the good news.

     For example, a group of dedicated young activists called Students for Saving Social Security has partnered with groups like the National Taxpayers Union and launched a new Web site ( to unite grassroots supporters of personal retirement accounts. They are collecting online petitions in support of the president’s proposals and will deliver them to Congress when grassroots pressure in favor of reform is needed most.

     The president’s 2008 budget proposal now heads to Congress, where it is likely to be radically altered by the majority party. Personal retirement accounts may be postponed, but the stage has certainly been set for their debut.

Kristina M. Rasmussen is Senior Government Affairs Manager for the 350,000-member National Taxpayers Union (, a non-partisan citizen group founded in 1969 to work for lower taxes and smaller government. Ms. Rasmussen is also a guest columnist for the Media Research Center’s Business & Media Institute.