SOCIAL SECURITY GUARANTEE PLAN

REPRESENTATIVES BILL ARCHER AND CLAY SHAW

Social Security's Trustees have reported that by 2014, Social Security benefits will cost more than the program receives in taxes; then by about 2034 the Social Security will be insolvent -- its trust funds will be depleted and the program will be able to pay less than 75 percent of promised benefits. Representative Bill Archer and I recently proposed a plan to permanently save Social Security from insolvency. We call our proposal the Social Security Guarantee Plan. We crafted this plan with several goals in mind:

(1) Save Social Security for 75 years and beyond;

(2) Fully guarantee current Social Security benefits, including COLAs;

(3) Ensure fairness by avoiding payroll tax hikes or increases in the retirement age that would unfairly burden our children and grandchildren;

(4) Protect workers' rights by eliminating the Social Security earnings limit and making sure their Social Security taxes are protected and not spent on other Washington programs;

(5) Promote fiscal responsibility by backing Social Security benefits with real wealth instead of IOUs for the first time; and

(6) Reduce payroll tax burdens on our children and grandchildren.

The U.S. General Accounting Office has told Congress that to save Social Security, payroll taxes would have to be raised by 15 percent or benefits cut by 13 percent. (To put that in perspective, for the average retiree receiving about $750 per month in benefits, if we relied on benefit cuts alone to maintain Social Security's soundness we would have to reduce monthly benefits by about $100, to $650. Obviously, that must be avoided at all costs.) If we delay, even more drastic benefit cuts or tax increases would be needed to keep Social Security up and running. Our plan answers this challenge of saving Social Security without raising payroll taxes, without cutting benefits, and without direct government investment of Social Security Trust Funds in private financial markets.

Here's how the Social Security Guarantee Plan would work. Each worker covered by the Social Security program would receive an annual tax credit equal to 2 percent of his or her earnings (up to $72,600 this year). So if you make $20,000 you get a $400 tax credit; if you make $40,000, you get a $800 credit; and the maximum tax credit would be $1,452 (2 percent of $72,600). This amount would be automatically deposited each year into a new personal Social Security savings account, which we call a Social Security Guarantee Account, created for each worker. The worker could then select from among a broad range of savings and investment options for his or her Guarantee Account. Account balances would accumulate tax-free throughout your working years. Once workers begin drawing Social Security benefits, their Social Security Guarantee Accounts supplement funds from the Social Security Trust Fund to provide full Social Security benefits. For our children and grandchildren especially, if their Guarantee Account could provide a larger benefit than they would otherwise get from Social Security, they and their family would receive the larger benefit - guaranteed for life.

If workers die before retiring, their Guarantee Accounts pass tax-free to their children or grandchildren or other heirs, after making sure that their survivors receive all the benefits they are owed today. That's in contrast with the current Social Security system in which workers can spend a lifetime paying taxes, die before retirement, and still not have any savings to pass on to their family or heirs. So in addition to saving Social Security for everyone, which is our main goal, this plan for the first time would create real wealth for all workers that they could leave to their families. Again, that's on top of keeping our commitment to provide full monthly benefits to workers and their widows and children.

Even current retirees would benefit by this plan in several ways. First, Social Security will be financially sound for 75 years and beyond under this plan; as Social Security's Trustees have stated, that is not the case today. Second, we maintain Social Security's soundness without touching Social Security's critical inflation protections (that is, without cutting cost-of-living adjustments or COLAs); some other "reform" plans have called for COLA cuts. Finally, our plan dramatically increases the amount that retirees can earn without experiencing cuts in their Social Security benefits. In fact, within 7 years this plan eliminates today's outdated "earnings limit" entirely for all retirees. So anyone who wants or has to work to supplement their Social Security can do so without being penalized.

The Social Security Administration's independent actuaries have stated that this plan "would be expected to eliminate the estimated long-range OASDI (that is, Social Security) actuarial deficit...allowing timely payments of benefits in full through 2073, and beyond." No other proposal - not even the President's framework for reform - can make that claim.

I am hopeful that this plan will prod Congress and the President to act to save Social Security. The Social Security Guarantee Plan Bill Archer and I have drafted is one way to go, but there are lots of other ideas, too. Social Security is one of the greatest things about America, and I want to keep it that way. Fortunately, our plan shows that Social Security can be saved without cutting benefits or raising payroll taxes. But we have to act and act soon or the task will get only tougher and the solutions more painful with each year that we delay.

Rep. E. Clay Shaw, Jr.