Sununu Proposes Legislation to Create Personal Social Security Accounts
WASHINGTON, April 20 – Sen. John Sununu has become one of the first senators to propose a concrete plan for changing Social Security, re-filing a proposal on Wednesday that would allow workers under 55 years old to eventually invest more than half of their Social Security payroll taxes through personal savings accounts.
“This is a better retirement security system,” the New Hampshire Republican said during a Capitol Hill press conference. “They (retirees) own it, it’s there for them when they retire and they can leave it to their children and grandchildren.”
Co-author Rep. Paul Ryan (R-Wisconsin) said he also would re-file the bill in the House on Wednesday. Last year, Sununu’s version of similar legislation failed to get out of the Senate Finance Committee.
Under the measure filed Wednesday, persons 55and older would be covered by the current Social Security program, while those younger than 55 would have the option of diverting a portion of the annual 12.4 percent Social Security payroll tax into their personal accounts.
Between 2006 and 2015, workers would be allowed to invest an average of 3.4 percentage points of the tax, or more than one-quarter of the total tax, through their personal accounts. Starting in 2016, an average of 6.4 percentage points of the tax could be placed into the accounts. These accounts would be backed with a federal guarantee that investors would be able to collect, at a minimum, a sum equal to the Social Security benefit they would be entitled to under the current law, Ryan said at the Wednesday press conference.
The lower percentage of the payroll tax during the first 10 years would allow the plan to be phased in at a lower cost, Ryan said. The transition costs of meeting the benefit payoffs to retired workers while reducing the revenue from the payroll tax would be paid for three ways, Ryan said. The first is to “stop the raid” on current Social Security payroll tax surpluses, which are used to fund other federal programs, he said. Second, the bill places savings resulting from a one percent reduction in the rate of federal spending growth for the next eight years into Social Security. Third, corporate tax revenue generated by the new personal account investments would go to guarantee payment of the benefits under the current law.
“If none of that happens over the next 10 years, we would have to borrow $1.1 trillion to finance this bill,” Ryan said. “I would argue that borrowing.$1.1 trillion to pay off a $12 trillion debt is still a very good deal.”
Ryan was referring to the Social Security Administration’s estimate that the system’s “unfunded liability” in perpetuity would amount to at least $11 trillion. Critics have called that estimate meaningless.
President George W. Bush has been touring the nation promoting his agenda to restructure Social Security, including establishment of personal accounts. The White House has said it will be up to Congress to work out the details of any change to Social Security.
On Monday, during a stop in South Carolina on his 60 Stops in 60 Days tour, Bush said that personal accounts would not be enough to save Social Security. He said an increase in retirement age and a change in the formula that determines annual inflation adjustments in benefits under the current system are among the adjustments that should be considered. One idea is to base that formula on annual changes in the cost of living rather than wage increases, Bush said.
Bush’s critics have said that applying the Social Security payroll tax to more than the current cap of $90,000 a year would go a long way to solving the system’s financial needs without resort to wholesale changes.
Bush’s personal accounts plan “diverts money way from the system that provides benefits to working people,” Mark MacKenzie, the president of the New Hampshire chapter of the AFL-CIO, said of Sununu’s plan. “Even if you look at the future of Social Security, Social Security has been adjusted in the past and the payroll tax has not been raised on Social Security in years and the cap has not been raised on Social Security. They should take the cap up and they’ll have some more money going into the system.”
MacKenzie said in an interview that corporate cuts in benefits and pensions have left people with little money to put away, resulting in a reliance on social security. Furthermore, the lack of stability in the stock market makes workers reluctant to invest, he said. “They understand it’s a crap shoot. They look at a market capable of dropping 100 points in a day.”
Sununu said the legislation he filed would not have to resort to changes in benefits or in payroll taxes. “I think our legislation proves that personal retirement accounts, in and of themselves, can bring us a permanently solvent system,” he said.
According to a report the chief actuary of Social Security filed last year, the Ryan-Sununu plan would eliminate the $11 trillion unfunded liability in Social Security if it follows its current course. The actuary also found the Ryan-Sununu plan would achieve growing surpluses by 2038, 11 years before the current system is said to go bankrupt, and would produce solvency by 2051, Ryan said.
Sununu said this measure is “the least we could do in order to avoid sticking our children and our grandchildren with a $12 trillion bill.”
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