Archive [January 1999]

Remember Hillary Clinton’s shadowy task force to impose socialized medicine on America, to bring one-seventh of our economy under Washington control? She tried to keep the names of the task force’s members top secret, so no one would know what she was up to. The plan she and her comrades came up with was so radical that the whole thing went down in flames — even under a Democratic Congress — leading to Republican majorities in both the House and the Senate for the first time since the 1950s.

You’d think Bill and Hillary would’ve learned their lesson, that secret powwows about reshaping society give Americans the willies.

No such luck. In December, William Jefferson Clinton took time out from his busy scorched-earth schedule to hold two days of meetings on “saving” Social Security. It was at a formal hotel ballroom, with three panels of Social Security “experts” presiding from a raised dais against a backdrop adorned with American flags and giant Social Security cards. But the real discussions took place behind closed doors and away from the press. The White House said the secret sessions were — get this — “to try to build trust.” I kid you not.

Meanwhile, the official Administration line is that President Clinton is leaning toward private sector investment for Social Security — though Treasury Secretary Robert Rubin is said to be against anything substantive. Ever since last year’s congressional campaign, the President has done nothing more than hint that he might support some kind of individual account scheme that could include investment in the stock market, at the discretion of the individual. In other words, it’s all just a big tease. Like everything else Sick Willie says, his words could mean just about anything he wants them to mean:

“We should begin this process on common ground, agreeing above all on the importance of acting and acting now,” Clinton said, opening the two-day conference. But he’s had six years to “act now” on Social Security. For all we know, the plan he ends up proposing could enact major Social Security tax increases. Or, worse, it could be a scheme to set up a Washington bureaucracy that would invest hundreds of billions of payroll tax dollars into its favorite companies. Suddenly, the biggest investor in the stock market would become Uncle Sam, using your savings as Monopoly money.

Liberals, too, fear Clinton’s unpredictability, as revealed in a column in The Boston Globe by Robert Kuttner — co-editor of the ultra-left American Prospect. Kuttner reports: “As the Administration was debating whether to cut a deal with Republicans for partial privatization of Social Security, several liberal strategists said privately that if the President were impeached and subjected to a lengthy Senate trial, at least he would be far too preoccupied to sell out Social Security.” Nobody trusts the guy!

But who knows what Bill Clinton will do. Right now, he’s keeping it his own little secret. When asked if Clinton would likely put forward any legislation on his own, a spokesman said the President “would do what was needed to reach consensus.” Whatever that means.

Despite the President’s obvious reluctance to reveal his plans, Social Security simply isn’t the “third rail” of politics anymore. In a poll taken in early December for the Associated Press, three-quarters of American adults wanted the option of investing part of their Social Security withholdings in the stock market — something that until just a couple of years ago was considered unthinkable.

Senate Finance Committee Chairman Bill Roth, the Delaware Republican, has already announced that he isn’t waiting for Der Schlickmeister. He and the rest of the Committee will push ahead with a plan of their own to create personal retirement accounts. The plan would mimic a program that is already available to lawmakers and federal employees.

But the Democratic party is under the control of special interests like Big Labor, which prefer big government control over the livelihood of their rank-and-file. So, although public opinion is constantly cited by Democrats on Clinton scandals, poll numbers don’t move the likes of Dick Gephardt on this issue. “Daring and innovative ideas are always attractive and interesting,” Gephardt sniffs, “[But] you don’t tear down a fundamentally sound structure that is beginning to age. You shore it up.”

The problem is, the Democrat Cow of Social Security is not a “fundamentally sound structure.” Since 1935, “shoring up” the Social Security system has entailed raising Social Security payroll taxes more than 800 percent — from a 2 percent tax rate when Franklin Roosevelt established the program during the Great Depression, to 12.4 percent today. Payroll tax rates or earning ceilings have been raised more than 30 times since then.

“But these increases are nothing compared with the tax hikes that today’s young workers will face, unless the system is reformed,” according to a new book, A New Deal for Social Security, by Peter J. Ferrara of Americans for Tax Reform and Michael Tanner of the Cato Institute. The Social Security Administration projects that in order to pay all the benefits for young workers entering the workforce today, the payroll tax — the FICA deduction on your pay stub — would have to reach a staggering 18 percent … a 50 percent increase.

This is only the Social Security Trustees’ intermediate projection, which has historically been overly optimistic. They also do a “pessimistic” projection. “To pay all the benefits promised by both Social Security and Medicare part A, the total payroll tax would have to increase from 15.3 percent to an astonishing 46 percent or more,” Ferrara and Tanner point out. “Young workers would be paying nearly half their paychecks in payroll taxes — even before paying income taxes … Clearly tax burdens of that magnitude are unsustainable.”

And don’t forget that it was Bill Clinton who raised income tax rates — taxes you have to pay in addition to these payroll taxes. He even added a new income tax bracket of 39.6 percent.

But what about the Social Security and Medicare “trust funds”? Sorry, folks — they’re nothing to place your trust in. “On paper, the Social Security trust funds have enough IOUs to ‘pay’ Social Security benefits for about 17 months on any given day,” notes John Goodman, President of the National Center for Policy Analysis in Dallas. “The Medicare trust fund can ‘pay’ benefits for about one year. In reality, they cannot pay anything. Handing IOUs back to the Treasury does not increase the size of Uncle Sam’s bank account one iota. In order for the Treasury to write a check, it must first tax or borrow.”

The answer to the problems with Social Security is the answer we’ve seen work around the world. Invest in the private sector, giving control of retirement money to the employees themselves. It’s called … freedom.

Chile was the first country in the Western Hemisphere to establish a Social Security system, long before the United States did, back in 1925. Ironically, it is also the first nation to institute a complete privatization of Social Security, in 1981. The results have been astonishing.

The country had been suffering from the same problems we are having. Payroll taxes were more than 26 percent, while at the same time the system ran huge deficits. Benefits were sub-standard.

But led by Chile’s then-Labor and Social Security Secretary Jose Pinera, the government stopped imposing payroll taxes on employees. Instead, 10 percent of each employee’s wages each month are automatically deposited by the employer into a worker’s own individual “Pension Savings Account” (PSA). Workers can elect to add as much as another 10 percent of their earnings to their accounts, which are tax-deferred, like an IRA.

Employees choose from a dozen private investment companies approved by the government, and may invest their pensions in whatever mixture of stocks, bonds and other financial instruments they like. The government limits risky investments, and the competition between the 12 investment firms insures high performance and low administrative fees. Employees participating in the old system were given a choice of staying there or switching to the new system. The pensions of those already retired were guaranteed.

In 17 years of free market Social Security in Chile, the average real return on investment has been 12 percent per year — more than three times what was expected. The typical Chilean retiree receives benefits equaling nearly 80 percent of his average annual income over the last 10 years of his working life. That’s nearly twice the proportion American retirees enjoy. Meanwhile, poverty in Chile has been halved since the early 1980s. Olé! (A little Spanish lingo, there.)

Australia, Britain and Singapore have also radically reformed their Social Security systems by allowing or requiring workers to save for retirement in personal retirement accounts. The Chilean model has been copycatted in Argentina, Bolivia, Colombia, Costa Rica, Hong Kong, Mexico, Peru and Uruguay. It will soon be implemented in Ecuador and El Salvador. We’re way behind the curve on this, folks.

You might expect America’s financial gurus to jump right on board the freedom bandwagon and support more individual choice in Social Security. You would be wrong. Arthur Levitt, chairman of the Securities and Exchange Commission, thinks ordinary people may not be able to handle their own pension accounts. Levitt was criticized by Sen. Bob Kerrey, a Democrat on the right side of this issue. Kerrey says Levitt is making “the presumption that the average working American is just not sophisticated enough to figure things out.”

Tens of millions of you are already demonstrating that you are quite capable of figuring things out. You’re placing the fruits of your labor into pension plans invested in the real world of profitable companies, typically under the care of mutual funds, because you know that the private sector will give you a return on your money. You know further that the wasteful, inept government can’t and won’t do that for you. And that proves that America — yes the real America, Professor Dershowitz — has already voted with its savings against depending on the government to step in and become their nursemaid when they reach 65.

For all intents and purposes, Social Security is already dead. It can’t be “saved.” And, thanks to the marketplace, countless numbers of Americans have refused to wait for Washington to reform the system. They’ve been planning for their retirement themselves with their own private pensions. Now it’s time for the politicians to catch up.