The fiscally responsible middle ground

[National Dialogue Moderator <moderator>]

The Social Security reform debate has been characterized as an
either-or choice between two ideological poles -- "status quo"or
"full privatization."   Defenders of the status quo argue that any
reforms which include a market-based component will undermine the
current safety net features and expose workers to dangerous risks.
Advocates of full privatization suggest that creation of privately
managed personal accounts will painlessly solve every challenge
while, in fact, they ignore existing long-term liabilities and the
needs of special populations.  Both extremes make for good, albeit
myopic, rhetoric but fail to acknowledge the virtue of hybridization.
The complete solution to the Social Security problem can and must
combine the best of the traditional program with new market-based
options.

The Kolbe-Stenholm plan represents a middle ground between the two
extremes.  The legislation we have proposed, the 21st Century
Retirement Security Plan, would strengthen the safety net of
traditional Social Security, restore the long-term solvency of the
Trust Fund, reduce future liabilities and increase individual
control over retirement income, all without increasing taxes.  Our
plan meets objectives of Democrats and Republicans.   The plan
demonstrates that it s possible to establish individual accounts
which improve rates of return for all retirees - a key goal of
Republicans -- while maintaining and strengthening the important
safety protections that the Social Security system provides  - the
key objective of Democrats.

The plan would create individual security accounts, funded through
a portion of the current payroll tax.  Allowing individuals to
invest two percent of their current payroll tax in an individual
security account offers the fairest deal to both beneficiaries and
future taxpayers.  Such a strategy would improve rates of return,
and therefore increase retirement income relative to a package of
purely traditional solutions.  Just as importantly, diverting two
percent of payroll taxes into individual accounts allows us to
better reduce long-term federal liabilities compared to other
solutions to restore solvency.

Our legislation demonstrates that it is possible to give individuals
control over their retirement income while also providing government
safeguards that address legitimate risk concerns.   It creates
individual accounts based on the Thrift Savings Plan model which
combines the benefits of individual ownership with the protections
offered by a government- appointed board to select fund managers.
The Thrift model offers a straight-forward, low-cost retirement
savings  mechanism safeguarded against fraud and abuse.   If extended
to the public, every American would have the opportunity to choose
between options with higher risk and the potential of a commensurate
higher return and those which are safer, with lower rates of return.

Under our legislation, every worker would be able to choose from
among a number of investment options selected by a government-appointed
board based on a competitive bidding process.  The options would
include stock index funds, a bond index fund, a blended index fund
including both stocks and bonds, and a government securities fund.
The burden of record-keeping for each individual account would be
assumed by the board.  Employer burdens and administrative costs
would be kept to a minimum.  The administrative costs would be
spread across accounts proportionally based on account balances to
limit the impact of administrative charges on small accounts.

Opponents of individual accounts highlight examples of poorly
implemented individual accounts in other countries which resulted
in high administrative costs.  There are legitimate administrative
cost concerns about purely privatized individual account plans
involving dozens of private account managers; however, these concerns
can be addressed without eliminating individual control and turning
investment decisions over to the government.

Suggestions from  the left and right that we can solve the problems
facing Social Security without making any tough choices are
misleading.  Scrutiny of these "free lunch" approaches reveals that
these plans fund their promises by placing a tremendous burden on
future taxpayers. I learned long ago that if something sounds to
good to be true, it probably is.  That lesson is an important one
to remember as we discuss Social Security reform.

The Kolbe-Stenholm plan honestly addresses the tough choices that
are necessary to eliminate the unfunded liability of the Social
Security system in a fair and responsible manner.  Our plan
acknowledges the tradeoffs in dealing with Social Security, instead
of hiding the costs by shifting them elsewhere.  We target reductions
in the guaranteed benefit toward higher earning workers who will
benefit from individual accounts, and protect low-income workers
from any reductions.  In fact, our plan actually strengthens the
safety net for low-income workers  through the minimum benefit
provision which will provide greater poverty protection than current
law.   Any income from individual accounts would be an added bonus
above the poverty protection from the minimum benefit for low-income
workers.

We have never claimed that our plan is perfect.   I'm sure every
one of you could go through our plan and point out problems or
shortcomings with our bill that I would agree are valid concerns.
What I'd encourage you to remember is that we have a plan which
has been spelled out in legislative language that fleshes out the
specifics of the plan and has been subject to thorough review by
the Social Security actuaries, CBO and CRS and found to achieve
solvency and meet the goals we set forth.

Congressman Charlie Stenholm