December 11th, 2006

From James D'Angelo, Northwestern Chapter Leader:

"Social Security? Why now? Who cares?" This is a normal response to one of my almost daily rants about Social Security reform here on Northwestern's campus. Whether I am yelling at the Rock (a central location here on campus) or holding a Social Security workshop on personal retirement accounts or just explaining my passions to a random student on our way to class, I almost always get the same reaction. It's rarely disagreement though. It usually just consists of a sigh and a bad excuse for why they don't have time to listen to me. I don't give up there though. I push forward and get every last person to hear me out, if only for a little while.

The general response is, "Wow, really?" The problems with the current Social Security System are generally unknown. "It's going to be bankrupt when I retire?" and "The current system disproportionally hurts minorities?" and "There's a better solution out there?" are common reactions.

The key here is that the system's impending bankruptcy is not the only issue that gets students' attention. In fact, it tends to be the least convincing. The current system has a lot of other shortcomings, from poor return on investments to an inefficient incentive system to an unfair tax burden on young workers, all of which really do turn heads. Budget problems and solvency issues often do nothing more than confuse or bore students, but startling facts provide motivation for all types of students. For example, 1 in 3 young black males are paying into a system that they won't live to benefit from. Explaining this side of Social Security, and other shortcomings similar to it, has convinced many students.

This is only half the battle though. Students are willing to acknowledge the problem but have almost no hope that it can be successfully changed. This is where chapters of S4 have come into play. Students do care, and S4 helps our generation work towards positive, long-lasting change in the way of personal retirement accounts. Specifically here at NU, a lot of progress has been made. We're spreading around petitions, hosting events, and spreading the word. It takes work, but students have taken very well to the reform suggestions here on campus.

Bringing honest explanations into dorm rooms and classrooms around the country can dramatically change this issue. We just need to get the right words out there. It's working here in Evanston. There is no reason why the same thing can't be said about every college town.

December 08th, 2006

Some people have tried to interpret the November election results as evidence that reformers ought to change direction on Social Security.  "[T]he only politicians who are likely to be pushing Social Security privatization are those looking for a change of career," one blogger wrote the day after the election.

But back in September, we predicted that candidates in support of personal accounts would do well in the election.  Urging refomers to explain and support their position rather than give in to attacks from trust fund "pirateers," we noted, "Those who have stood tall on the issue of personal accounts have historically fared rather well, leaving one to guess that most people really do understand that the alternative to reform is higher taxes."

Was 2006 the year that people stopped understanding the need for reform?  Was this election proof that politicians should back away from personal accounts?

The answer to both questions is absolutely not.

Of the three bills that would have allowed workers to invest part of their payroll taxes in a personal account (Ryan-Sununu, Johnson-Flake, and Kolbe-Boyd), there were a combined 24 co-sponsors up for re-election.  Of these twenty-four, 23 were re-elected.  Only one candidate -- Congresswoman Anne Northup -- lost.  

Is it time for politicians to change direction?  Yes, but only for those who still oppose personal accounts.

December 07th, 2006

Russell Bailyn continues to do good work talking to young people about the importance of reform.  Bailyn is working on a book to be published this summer about personal finance information and the blogosphere. 

Click here to read "Social Security: A Youthful Perspective," which discusses the issue of youth awareness and offers some solutions.  

December 06th, 2006

As the story goes, a frog placed in boiling water will immediately jump out.  But if you place the frog in cold water and gradually turn up the heat, it will never try to escape.

When it comes to the payroll tax, Congress has turned up the heat quite liberally over the years.  The chart below reflects the increases in the combined payroll tax rate that have led to the current rate of 12.4%.  But even this chart does not tell the whole story, for the amount of income subject to the payroll tax has also been increased numerous times since Social Security's inception.

Young workers are being placed into a pot of boiling water.  It's no wonder we're jumping out and supporting personal accounts as the alternative to our unsustainable retirement system.  

Source: Joint Economic Committee

"The best measurement of a president's success is whether his policies and actions had a long-term positive impact for the American people--not just this year or this presidential term, but for decades or generations to come," Pete du Pont wrote in the Wall Street Journal two years ago.

The former governor of Delaware wondered how President Bush will be remembered, noting (prior to the President's 2004 re-election) that fiscal responsibility, tax cuts, and the Iraq war will all likely play a part in the President's legacy.  Though it is difficult to know the long-term effects of all issues, du Pont wrote, one of Bush's policies will almost certainly be looked upon fondly long into the future: the ownership society.

It is within this policy that du Pont fit personal retirement accounts, as PRA's would provide a huge step toward individual ownership and choice.  du Pont wrote that a policy including personal accounts "would solve the Social Security solvency problem, avoid large tax increases on working people, give millions of Americans ownership of significant economic assets, and advance the democratic capitalism that has made America the most successful economic nation in the world.  And it would make George W. Bush one of America's most successful presidents with a policy impact on generations of Americans for decades to come."

The argument is as good today as it was two years ago.  Bush has been a great leader on Social Security, and future generations will be much better off if we fix the program with the fundamental reforms it needs.   

November 30th, 2006

On the opposite side of the spectrum, we see a free market economy providing an example of what not to do.  In Italy, workers contribute to a severance fund that is held by their employers, who promise to pay back individual contributions plus interest when an employee leaves the company.  As an article in the Wall Street Journal explains (subscription required), the government decided that it wanted in on this arrangement, and it has since passed a law which makes the social security administration responsible for a portion of future severance payments in exchange for a portion of the money that each worker currently contributes to his or her employer.  The trouble is that the liabilities of future severance claims have not been reflected in the government's budget, a move which makes the additional funds appear to come at no cost.  The government intends to use the additional funds to help reduce Italy's deficit. 

China and Italy provide two clear examples of the power of money, and it is a sad fact that we see more of our Social Security system in the Italian "accounting miracle" than we do in the Chinese investment plan. 

S4 is thrilled to have Mark Harris as our new National Director and Natalie Vernon as the new Director of Outreach.

A 2006 graduate of George Washington University, Mark recently ran for the 42nd District House seat in Pennsylvania and defeated the ten-year incumbent in the primary. 

Natalie is a student at Smith College who has volunteered with S4 for the past two years.  She will work to increase activism and membership in targeted geographical regions.

"This is an important time in the Social Security debate," says Harris. "Young people don't want to see the payroll tax go up every twenty years, and I am excited to lead S4 as we continue to represent the interests of our generation by moving toward a permanent fix with personal accounts."

Read the press release here.

November 28th, 2006

Nearly two months ago, Sebastian Mallaby of the Washington Post wrote plainly and boldly about Social Security reform.  In "A Party Without Principles," Mallaby challenged that "If Democrats cared about poor women and minorities, they would be clamoring to reform Social Security."  Part of the reason Mallaby's piece was so good was that he criticized the Democrats' lack of direction so clearly.  "If the Democrats win a measure of power next month, it's hard to see what they will do with it," he complained.

Fast-forward to the reality of that Democratic power, about which Mallaby writes in yesterday's Post.  This time around, he lets the non-reformers off the hook.  As Mallaby runs through one of the compromises that is being discussed as a "solution," he explains the progressive indexing of benefits and the lifting of the contributory cap without any noticeable expression of concern. 

Well, you might think, there is no reason for concern if we get something in exchange for lower benefits and higher taxes.  What it is that we get in exchange, however, is a bit hard to see.  Mallaby writes that universal 401(k) plans--retirement plans subsidized by the government in varying degrees based upon income--would be a success for both parties.  To some extent, he is right.  Both parties want retirement security for all Americans, and both parties wish to increase this country's abysmally low savings rate. 

But what does this have to do with Social Security?  The answer may be in the Social Security surplus, but it isn't clear whether this is the connection or not.  Reading his article one way, Mallaby simply does not answer the question of what to do with extra money paid into Social Security.  Reading it another way, the answer is that surplus funds would be diverted into the universal 401(k) plans.  It is too early to support or oppose such a plan, but there are certainly some issues to be considered. 

First, we currently have a surplus.  Why not invest it somehow in a move separate from that of reforming the long-term financing of Social Security?  Second, why would we raise taxes and cut benefits to the point that there is a considerable surplus each year?  Third, the matching levels of universal 401(k) plans would ensure that the surplus would not be distributed evenly.  For example, if the sliding scale is such that high-income workers receive no matching contribution to their 401(k), this means that in addition to contributing more in taxes and receiving less in benefits, these workers will not receive a cent from the surplus for which they will be largely responsible.

If the temptation is to entangle universal 401(k) plans with our Social Security system, we should be wary of the ease with which the retirement security of all can become dependent upon the efforts of a few.  As Lawrence Lindsey writes in the Wall Street Journal, "Don't make it too tough on him, or Atlas may actually decide to shrug."

November 21st, 2006