SOCIAL INSECURITY
REFORM WOULD SHAKE UP LIBERAL VOTER BASE
BY LEWIS WHITTEN

Social Security is an awful, choice-less investment, explained former Pennsylvania Congressman Pat Toomey. At best, taxpayers might receive a 1-percent return upon retirement.

While reform seems obvious, a personal savings account option frightens Democrats. After all, people who save and have investments tend to vote Republican, suggesting that such a reform in Social Security would shake up the voting block that the left is so dependent upon.

At Caesars Palace, Toomey spoke in favor of Social Security reform as a guest speaker at the Applied Finance Group’s 2005 Research Summit. Toomey has debated Social Security reform with members of AARP and NAACP, ardent critics of reform, and according to Toomey both agree with the fundamental nature of the problem: “In its current form, the Social Security program’s current levels of payroll taxes and current levels of promised benefits simply and absolutely cannot honor the commitments they have made to future retirees.”

According to Toomey, the program has never been for saving and investments; it’s always been a transfer of wealth. Money put in is used the very same month to pay benefits for current retirees, which worked well when there were 16 workers for each retiree. Toomey estimates that now there are fewer than three people working for every retiree. Without reform, the system will collapse by 2017. 

The failing program so far has been propped up by cutting benefits and increasing taxes. “When the program started, the first $5,000 of income was taxed at 2 percent,” Toomey said. “Today, your first $90,000 of income is taxed at 12.4 percent.” Toomey warns that such a path of cutting benefits and increasing taxes to keep the program alive will make a very bad deal worse.

Reasons are numerous. For starters, Toomey points out that the expected rate of return is 0 to 1 percent. 

“Can you imagine if a private sector company said, ‘We’ve got a pension plan for you. Here’s the deal — put money into it for 45 years, and you’ll get back a 0-percent rate of return!’ It’s laughable,” Toomey said.

Other problems include: If a worker dies before retirement age, his investment is lost. This problem is even worse for black males who statistically have the lowest life expectancy. Also, some workers fall into a false sense of security and do not save for retirement because they assume the government will take care of them.

The problem is bad for Democrats because they are committed to the current structure of the program, one that many young people do not trust. Five months ago, Bush made Social Security reform his top domestic policy issue. Still, according to Toomey, many Republicans are weary of giving support.

“Republicans are moving slow on the issue because they have safe seats for re-election and simply don’t want to rock the boat,” Toomey said. “Any major legislation will probably come after the next election.”

The reform plan is to allow workers to give a portion of their Social Security payment to a private account that is regulated and professionally managed. “It gives every working American a chance to accumulate savings,” Toomey said. “This would gradually eliminate this huge unfunded liability. In the end, the government wouldn’t even have to write the retirement checks.”

Another idea suggests that by giving workers more control of their investments, they will be more likely to vote Republican. “People who save money and have investments tend to vote Republican,” Toomey said, suggesting Democrats cannot afford to allow their noninvesting political base to participate in this type of program.

Toomey is currently the president and CEO of the Club for Growth, a PAC that supports Republican candidates who actively support Republican ideals of small government and a free-market economy. The Club for Growth plans to support candidates in favor of Social Security reform, which according to Toomey, “would be the biggest most important reform in terms of domestic policy in 50 years.” LW