Rep. Shaw: Social Security Faces $26 Trillion Deficit (a workable plan?)

newsmax.com ^ | Wednesday, Apr. 28, 2004 | newsmax.com

[ovrtaxt]

Rep. Shaw: Social Security Faces $26 Trillion Deficit

NewsMax.com
Wednesday, Apr. 28, 2004

WEST PALM BEACH, Fla. – Rep. Clay Shaw, the chairman of the House Ways and Means subcommittee on Social Security, warns that Social Security faces a $26 trillion deficit over the next several decades.

He said the pension system needs urgent repairs – and he has a plan for saving Social Security and helping Americans save ... without raising taxes.

Last week, Congressman Shaw, the former mayor of Fort Lauderdale who represents a large swath of South Florida, dropped by NewsMax’s offices and explained to our editorial board how to prevent the federal retirement program from going into bankruptcy, which may happen in the next 12 to 14 years if steps are not taken now.

“It’s a mess. We can solve it,” said the veteran, 12-term congressman.

For starters, Shaw insists any plan to help Social Security must guarantee all recipients their justly deserved pension income. That cannot and should not be tampered with, he says.

His Social Security Guarantee Plus plan, he told the group, “sounds liberal, but isn’t.”

Under the plan, Social Security would remain intact, but American workers would have the option of receiving a tax credit to be deposited into a retirement fund.

An independent board will set up specifically to choose viable plans, and workers will be able to select one into which their funds will be invested.

When a worker decides to retire, he or she will be able to choose to retire on whichever fund pays them a bigger benefit – the IRA, or traditional Social Security.

There would be no tax increase because even if the government has to borrow the money to pay people with a tax credit, borrowing would cost less than the increased value of the IRAs would be worth, said Shaw, who is a Certified Public Accountant as well as lawyer by training. “It would also raise the savings rate of the American people, which is disastrously low.”

Addressing concerns about risk, he said the government would guarantee retirees would get no less than they do now, but could receive more. They would also be allowed top pass on their wealth accumulated in these accounts to their heirs, something that is not permitted with Social Security accounts.

He explains on his Web site: “Rather than just taxing workers more and more to meet benefit commitments, the Guarantee Plus Plan gives workers the opportunity to save money today to ensure payment of full promised benefits tomorrow without increasing payroll taxes.

“When benefits are funded in advance and take advantage of the better rates of return available in the equity and bond markets, less in taxes is needed to pay full benefits and the program’s cash shortfall is eliminated, thus saving Social Security. For the first time ever, real assets will back benefits, instead of government IOUs that simply represent claims on future taxpayers.”

Specifics of the how the program would work:

• Workers who pay Social Security payroll taxes would receive annually a refundable tax credit equaling 4 percent of wages up to a cap of $1,000, with the limit indexed for raises. The tax credit would be automatically deposited into the employee’s account.

• Individuals would choose from qualified asset managers to invest their accounts. Required to meet standards of safety and soundness, the investments would include mixes of stock index funds and high-grade corporate bonds, with earnings accruing tax-free.

• Once a worker begins receiving retirement, disability or survivor benefits, he would get 5 percent of the account in a lump sum. Social Security would calculate a monthly payment based on the balance. Nobody would suffer a cut in benefits even if the investment performs poorly. If the investment performs well, the recipient would get the surplus beyond the guaranteed Social Security benefit. Those who outlive their account balances would keep receiving benefits financed from the trust funds.

• In contrast to the current system, those who die before collecting benefits may leave their accounts to their heirs tax-free.

  Politics as Usual

  With all these advantages, what has bogged down the proposal in Congress for years? Partisanship, Shaw said.

  “The Democrats have put forward no plan at all,” he noted. “They’re just politicizing it.” Rather than let Republicans score on such a crucial issue, obstructionists would endanger Americans’ future.

  Even though Republicans control both chambers, the Senate’s arcane rules make it hostage to a minority of 40.

  Even Bill Clinton indicated support for the plan when he was president, the congressmen recalled. “He said, ‘Clay, if you can talk the Democratic leadership into it, I’m there.’”

  The Palm Beach Post, which Shaw said usually “isn’t crazy about” his proposals, has also backed it.

  Senior Citizens, conditioned by Democrats’ years of fear-mongering about Social Security, at first view the plan skeptically, but when the congressman explains it, “their heads start bobbing up and down,” he said.

  Rep. Shaw hopes that as more American learn of his plan’s strengths, they will press their elected officials to support it.

  Other topics discussed during the gathering at NewsMax:

• Lawsuit mania: One of the attendees mentioned that a friend had closed a U.S. toy factory and moved all the jobs to China because of high insurance rates caused by nuisance lawsuits, and others noted the shortage of doctors in many areas of the country because of the same problem. The congressman emphasized the need for tort reform, another issue Democrats have obstructed on Capitol Hill.

• The presidential campaign and Florida: “I don’t think the economy is going to be a big issue” because it is continuing to improve. He also noted that President Bush should win handlily in Florida this time, unlike his razor thin victory in 2000. He notes Florida did not experience the recession the same way other states did.

• Sen. John Kerry: He “did the president a big favor by coming down here and suggesting we drill for oil” off the coast of Florida, to the dismay of Sen. Bob Graham, who was with Kerry and “tried to correct him,” Shaw said. Democrats and most Republicans in the Sunshine State oppose energy production in the Gulf of Mexico.

  Editor's note:
  

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[ovrtaxt]

Hopfully, when Bush is re-elected, he will address this and real tax reform. (fairtax.org)

[Adder]

Negatives??
I'm not an econ whiz, but this sounds workable and preserves the "3rd rail"...I mean if you are going to get at least the regular benefit, where's the downside?
The market could crash...then benefits would be paid from the gov't pot like always, at a loss or deficit doesn't much matter...we have that now.
Or investments could pay off and reduce the load on the gov't pot.
OOps, downside 1: that money will have been spent if there is a percieved "surplus" in the investment accounts.

I'd be interested in others comments who understand this more than I.

[Wolfie]

What's to stop Congress from raiding the "new" accounts like they raided the old ones?

[ovrtaxt]

Here's some info for your ping list, Geezer. Much like HR25, I can't think of a downside to this.

I wonder what Shaw's opinion of the FairTax is? can you post the 'congressional report card'?

[ovrtaxt]

That's a good question. Not many details here, though. This is the first time I've heard of this plan.

[JamesA]

A simple and quick cure for Social Security would to put all retired congress/Senate on it. Let them try to live on it and things would change because they couldn't.

[Wolfie]

I guess we'll have to see. But I'm cynical (or realistic, take your pick) enough to truly beleive that the next great step in the SS/Medicare debacle will be for the Feds to come for our 401Ks and IRAs.

[ancient_geezer]

I wonder what Shaw's opinion of the FairTax is? can you post the 'congressional report card'?

Appears Rep. Clay Shaw has indicated preference for the Fairtax but is not yet signed a co-sponsor.

For those interested scorecards for both House & Senate can be found here:

FairTax - Congressional Score Card

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a pure consumption tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer: http://www.fairtax.org & http://www.salestax.org

[Capitalism2003]

This really needs to be a priority. Everyone under 35 is facing a disaster...higher taxes to pay for existing retirees...a massive inherited debt, and absolutely no hope of getting back when they paid in...disastrous for your kids and grandkids. We need to fix this now...It's simply unfair to them.

[phil_will1]

"I'd be interested in others comments who understand this more than I."

I'mnot at all sure that I understand it any better than you. What I don't understand, specifically, is this. The biggest problem that we face in social security is that
1. It was never set up on an actuarially sound basis to begin with, i. e. that initial benefits were paid from initial contributions, and
2. the ratio of people paying into the system vs those drawing our is about to shift adversely aver the next few years.

I don't see how Rep. Shaw's proposal addresses either of those problems, unlike the FairTax, which changes the equation by eliminating the payroll tax and converting to a consumption tax. For that reason, the tax base may well double over the next 15 years, rather than shrinking.