WASHINGTON — Proponents of reforming Social Security with private investment accounts are not deterred by the current economic crisis and stock market gyrations, but they acknowledge the idea now is a tougher political sell.
“It’d be a whole lot harder to sell a market-based investment approach,” Rep. Zach Wamp, R-Tenn., said after Congress passed a $700 billion Wall Street bailout. “This definitely deals a blow to that alternative.”
Still, Sen. Johnny Isakson, R-Ga., said with Social Security payouts expected to exceed the amount of payroll taxes being taken in by 2019, fundamental changes to the program are needed, including allowing taxpayers to invest a portion of their contributions.
“We went from 40 or so workers to one beneficiary at the beginning to three workers to one beneficiary today,” Sen. Isakson said. “Those numbers don’t work on any insurance model of any type. We shouldn’t reject personal investment out of hand.”
Social Security, created 73 years ago by President Franklin Roosevelt as part of his New Deal to provide retirement and disability benefits, is funded through a 12.4 percent payroll tax on income up to $102,000. The benefit program is the largest source of income for two out of three retirees, according to SSA data.
The increasing life expectancy of Americans and government borrowing from the program’s funds have led to estimates by the Social Security Administration that the program will be out of money by 2041.
In 2005, President Bush proposed reforming the program, saying he wanted to allow workers to put some of their payroll tax into private investment accounts that operate similar to 401(k) retirement plans.
Critics of the proposal, including most Democrats, said the move would expose retirees to excessive market risk and would reduce the program’s available funds to pay current retirees.
“It would take the one rock-solid, guaranteed part of your retirement income and gamble it on the stock market,” Democratic presidential nominee Barack Obama said last month at an AARP forum.
Republican nominee John McCain has said he remains open to private accounts.
Supporters contend workers would have the potential to earn more through shrewd investments than they would otherwise get through Social Security.
Even though the S&P 500 stock index is down 30 percent over the last year, investors in private accounts could have put their Social Security contributions into other more conservative investments, such as bonds and certificates of deposit, said Rep. Nathan Deal, R-Ga.
“Just because you have control over it doesn’t necessarily mean you had to put it in the stock market,” he said.
Supporters also said they would not support any changes to the program that would endanger payouts to retirees.
“I will not support any proposal that would bankrupt the system and does not provide a 100 percent guarantee that all current and future beneficiaries receive their benefits,” said Sen. Saxby Chambliss, R-Ga.
Rep. Lincoln Davis, D-Tenn., remains opposed to any form of privatization, his spokesman said.
Sen. Bob Corker, R-Tenn., has warned that Congress will have to wrestle with several impending financial crises, including Social Security’s looming insolvency.
Though he has voiced support for private accounts, Sen. Corker said Congress’ priority should be in making sure Social Security stays in the black.
“Once we have ensured that the program is solvent, I would consider proposals that give Americans more choice in planning for their retirement,” he said.
Rep. Wamp and Sen. Lamar Alexander, R-Tenn., have backed proposals establishing an independent committee to hold public hearings and make recommendations on all government spending programs.
