Most of the top Republicans running for president are embracing plans to partially privatize Social Security, reviving a contentious issue that fizzled under President George W. Bush after Democrats relentlessly attacked it.
As President Barack Obama sidesteps ways to keep the retirement system viable, his would-be rivals are keen on letting younger workers divert part of their payroll taxes into some type of personal account to be invested separately from Social Security.
Former Massachusetts Gov. Mitt Romney has a version. Reps. Michele Bachmann of Minnesota and Ron Paul of Texas have said younger workers should be allowed to invest in alternative plans. Texas Gov. Rick Perry has raised the idea of letting whole groups, such as state and local government workers, opt out of Social Security.
These proposals are popular among conservatives who believe workers could get a better return from investing in publicly traded securities. But most in the Republican race have been careful to say they would fight to preserve traditional Social Security for current retirees and those approaching retirement. Younger workers, they say, should have more options.
Romney says the stock market collapse in 2008 shouldn’t scare workers away from investing in private accounts, but acknowledges it’s an issue.
“Given the volatility of investment values that we have just experienced, I would prefer that individual accounts were added to Social Security, not diverted from it, and that they were voluntary,” Romney wrote in his book, “No Apology.”
Any kind privatization, however, is sacrilegious for liberals and many moderates. They say it would drain resources from the more than 50 million people who now receive benefits. Social Security experts say raising the privatization issue could give Democrats a potent political weapon.
“Any Republican who pushes personal accounts too hard will ensure Obama’s re-election,” said Kent Smetters, a business and public policy professor at the University of Pennsylvania’s Wharton business school. “That’s bad news for the Social Security system because President Obama refuses to take a leadership position in dealing with the nation’s entitlement overspending.”
In 2005, Bush made a push to give workers the option to privately invest a portion of their payroll taxes to provide a supplement to government benefits. Republican lawmakers were reluctant to jump aboard as Democrats argued that Bush was trying to “end Social Security as we know it.”
“We’ll fight that fight anytime,” said Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, which oversees Social Security. “Bad policy is usually terrible politics, and that’s terrible politics.”
Perry has helped make Social Security a leading issue in the campaign by writing in his book, “Fed Up!” that the program is a “Ponzi scheme” and a “failure.”
Perry boasts that his provocative language is forcing the candidates to talk about an important issue. “Other candidates in this race were content on continuing to sweep it under the rug and continuing the status quo,” Perry spokesman Mark Miner said.
Obama mostly has avoided the issue in the first three years of his presidency, arguing that Social Security has not been a major contributor to the nation’s fiscal problems. As a candidate in 2008, Obama proposed increasing payroll taxes on high-income workers to help shore up the system, but he hasn’t pushed the idea since taking office.
All the top Republican candidates have denounced tax increases.
Despite Perry’s rhetoric, he hasn’t released a comprehensive plan to address Social Security’s financial problems. Perry says personal accounts “ought to be on the table,” along with raising the retirement age.
Perry says state and local governments should be able to opt out of Social Security and enroll workers in alternative retirement plans. As an example, Perry talks about a plan in Galveston, Texas, that allows county employees to invest a portion of their income in annuities and bonds.
Nationwide, about 4 percent of workers, mostly state and local government employees, are in alternative retirement plans.
Bachmann made the case for personal accounts in a television interview last year, saying young workers “need to have some options in their life, so that going forward they can have ownership of their own Social Security, their own retirement, something that they can pass on to the beneficiary of their choice.”
Paul drew applause during last week’s GOP presidential debate when he said, “What I would like to do is to allow all the young people to get out of Social Security and go on their own! Now the big question is, how would the funding occur?”
Social Security is facing long-term financial problems largely because aging baby boomers are starting to retire, leaving fewer workers to pay into a system that is supporting a growing number of retirees. In 1950, more than 16 workers paid into Social Security for every person who received benefits. Today, the ratio is down to three workers paying in for every beneficiary taking out.
Social Security already pays out more in benefits than it collects in payroll taxes. The system has built up a $2.6 trillion surplus, which was invested in Treasury bonds. But that surplus is projected to run out in 2036, unless Congress acts. At that point, Social Security will collect only enough payroll taxes to pay about three-fourths of benefits, according to the trustees who oversee the program.
Experts say allowing people to opt out of Social Security, or to divert a portion of their payroll taxes into private accounts, would drain even more resources from the system, at least in the short term.
“If you’re looking at narrow self-interest, then there is an argument that can be made for being out of it,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “But it’s a national program. The reason that unfunded liability is there is that all our grandparents got benefits in excess of what they put in, and so everybody should be in and contributing to pay that off.”
Social Security Administration: https://www.ssa.gov
Center for Retirement Research: https://crr.bc.edu