Dayton v. Kennedy

Returning Senator Mark Dayton to the Ranks of the Idle Rich in 2006

1/11/2005

But Will His Party Follow?

Congressman Kennedy has signaled he is ready to tackle the difficult issue of Social Security reform, but what about his colleagues? This piece details how as many as 40 Republicans have cold feet on the issue.

Read this in yesterday's Washington Times by Peter Ferrara to find out why the White House's approach to SS is all wet and why Congressional Republicans are justifiably wary.

The solution? Ferrara maintains the only solution that is both politically tenable and fiscally responsible is the Ryan-Sununu plan:

First, large personal accounts like those proposed in legislation by Rep. Paul Ryan and Sen. John Sununu completely obviate the wage indexing issue and reduce future Social Security liabilities far more than price indexing would. That bill would allow workers to shift about half of the total Social Security payroll tax to personal accounts, with the accounts substituting for currently promised retirement benefits to the extent workers exercised the option over their careers.
Under the official score of the bill by the system's chief actuary, virtually all Social Security retirement benefits would eventually be shifted to the personal accounts, where workers would actually get much better benefits than Social Security even promises today, let alone what it can pay. As a result, Social Security expenditures for retirement benefits would be reduced by 21 percent by 2030, by 40 percent by 2040, by 50 percent by 2045, by 67 percent by 2050, by 80 percent by 2056 and by 95 percent by 2078.
This approach allows advocates to focus exclusively on the positives of much better benefits for workers through personal accounts and personal ownership of hundreds of thousands of dollars accumulating in the accounts by retirement.
With Social Security liabilities shifted entirely to the accounts, there is no need at all for the negatives of the largest cut in future promised Social Security benefits in world history, which is what price indexing would constitute.
Price indexing, in fact, would cut future promised Social Security benefits for today's young workers by between 30 and 40 percent. Taxes paid through the payroll tax would grow with wages, while future benefits would grow only with prices. Consequently, the miserable rate of return Social Security promises young workers today, even with the current wage indexing, would actually decline each and every year under price indexing, in perpetuity. All workers would eventually receive negative real returns from the program, getting more negative each year forever.
Under the current wage indexed system, the replacement rate, the percentage of preretirement income replaced by Social Security remains stable over time at about 40 percent for average-income workers and 28 percent for low-income workers. That is because incomes increase generally at the rate of growth of wages, and future retirement benefits do as well.
But with price indexing and incomes growing with wages but future benefits growing only with prices, the replacement rate declines each and every year, in perpetuity. Eventually, it would decline to 20 percent for today's young workers, then continue down to 10 percent, 5 percent, etc.

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