Senators Pledge To Stop 'Raid' On Social Security In New Bill

by Mike Godfrey, Tax-News.com, Washington

28 June 2005

At a news conference on Capitol Hill last week, eleven Republican Senators announced new legislation to “Stop the Raid on Social Security.” The new measure protects the Social Security surplus by creating personal savings accounts that workers would own and that would be fully inheritable.

Calling on Congress to “stop the raid and start saving the surplus,” Senators Jim DeMint (R-S.C.), Rick Santorum (R-Pa.), Lindsey Graham (R-S.C.), Mike Crapo (R-Idaho), and Tom Coburn (R-Okla.), John Sununu (R-N.H.), Johnny Isakson (R-Ga.), Mike Enzi (R-Wyo.), John Cornyn (R-Texas), Trent Lott (R-Miss.) and Sam Brownback (R-Kan.) announced the introduction of the Stop the Raid on Social Security Act.

The bill works to achieve three goals: 1) the Social Security surplus should only be used for Social Security, not other government programs; 2) Surpluses should be saved in personal accounts that are legally owned by workers; and 3) the surplus should not be used to mask the true size of the national deficit. The proposal accomplishes these goals by walling off Social Security surplus money from other government spending through the creation of personal retirement accounts (PRAs).

According to the Social Security Trustees, Social Security will run a surplus until 2017. Currently Social Security taxes pay for retiree benefits, as well as benefits for widows, orphans, and the disabled. Any funds left over, known as the Social Security surplus, are used for other government spending. Including interest, Congress has already spent $1.7 trillion of the Social Security surplus since 1985.

The Stop the Raid on Social Security Act would change this practice by directing money from the surplus to fund newly created PRAs. People under the age of 55 will have PRAs, or can choose to opt out. The accounts will initially be invested in marketable Treasury bonds. This allows a safe and prudent transition period for the development of personal accounts to protect the Social Security surplus.

An independent board, similar to the one which administrates the retirement plan for Members of Congress and Federal workers, will administer the PRAs. In January 2008, the board can offer individuals the opportunity to diversity into other prudent investment options. When a person retires, the account balance will be used to help pay Social Security benefits.

According to the analysis prepared by the Office of the Chief Actuary at the Social Security Administration, the plan:

• Saves $792 billion in cash surpluses in personal accounts between 2006 and 2016;
• Attracts universal participation since there is no down-side for workers;
• Rebates surpluses back to workers on a proportional basis. For example, if the surplus amounts to 1.5% of total taxable earnings for all participants, then participants may contribute 1.5% of their taxable earnings;
• In 2006, workers are estimated to receive a 2.2% rebate. Therefore, a worker earning $35,000 in 2006 could contribute $770 to their PRA. If this worker is 25 years of age, invests in government bonds, and retires at age 67, she would accumulate over $43,000.
• Holds solvency harmless so that “full scheduled benefits would be payable until 2041…”
• Uses near-term surpluses to make a dent in the long-term cash flow deficit. The present value of future spending reductions would total $519 billion.

Senator DeMint noted that:

“Social Security has been a secret slush fund for Congress for over twenty years. It’s time to stop the raid and start the accounts. American families pay thousands of dollars in Social Security taxes every year, and not a penny is saved for their retirement. Politicians of both parties have been secretly robbing workers’ retirements to pay for other programs.

"This plan will take the first step toward long-term reform by locking away money today and reducing government obligations tomorrow. This plan will restore integrity to the program and restore trust with the American people about how Social Security is run.”

Senator Santorum, Chairman of the Senate Republican Conference and the Senate Finance Subcommittee added:

“This legislation is a necessary first step towards saving and strengthening Social Security. The Social Security program is based on a mutual trust between American citizens and the federal government. Hard-working Americans place their earnings into the Social Security system expecting benefits upon retirement.

" If our government then uses that money to fund other programs, it constitutes a violation of the public’s trust. By stopping the raid on Social Security, we are not only making sure that Americans’ hard-earned money is saved for their retirement, but we are also keeping our word to millions of retirees that their benefits will be there when they retire.”

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