CAGW Outlines Social Security Reform Criteria | Citizens Against Government Waste

CAGW Outlines Social Security Reform Criteria

Press Release

For Immediate ReleaseContact:     Tom Finnigan   or   Lauren Cook      
May 10, 2005(202) 467-5309, (202) 467-5318


(Washington, D.C.) – Citizens Against Government Waste (CAGW) today joined other like-minded organizations, President Bush and millions of Americans in the call for Congress to implement a sweeping Social Security Reform plan, and laid out criteria that any taxpayer-friendly, CAGW supported bill must include.

In 13 years, Social Security will begin paying out more in benefits than it earns in pay-roll taxes, also known as running deficit.  At that point, the Social Security Administration will try to prevent insolvency by turn to its trust fund, which by President Clinton’s observation amounts to “claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”  Consequently, in 2018 the federal government, which had a record budget deficit of $416 billion in 2005 and a $7.7 trillion national debt, will have to come up with $12 trillion to fund the benefits promised to future seniors.  Furthermore, estimates suggest that every year the Congress waits to fix Social Security will cost between $160 and $600 billion more.

“The Social Security system has reached crisis levels and reform must come sooner rather than later,” CAGW President Tom Schatz said. “As plans are proposed, CCAGW, CAGW’s lobbying arm, will grant or withhold its support based on whether the legislation conforms to these principles: private accounts must be included, there can be no tax increases of any kind, benefits must be determined by a progressive-index and the pay-roll taxes placed in the Social Security fund must be restricted from any other government use.”

An acceptable Social Security reform package would:

  • Create Personal Retirement Accounts (PRA), financed with a portion of existing payroll taxes.  PRAs would allow workers chose to invest a percent of their current payroll taxes into a mixed-portfolio of low-risk mutual funds and super-safe government bonds (without requiring any specific knowledge of economic sectors or complicated stock options) earning a markedly higher rate of return than the current system.  Workers would own and could use these accounts to build a nest egg for retirement and/or pass on to their heirs.
    • CAGW does not support so-called Add-on Accounts, which would allow tax-shielded investment on a portion of income beyond the current payroll tax.  This is just another version of IRA and 401(k) plans already available to American taxpayers.
    • PRAs must be: individual, the sole property and control (within investment-option parameters) of the worker and must be convertible to either monthly supplemental checks or transferable to heirs.
  • Include No Tax Increases.  According to the Social Security Administration, for the current system to remain without fundamental reform benefits would need to be cut by 35 percent or pay-roll taxes raised by 50 percent—amounting to $27 trillion or an additional $104,810 per family to overcome the predicted insolvency.  This is unacceptable; there can be NO tax increases.  The payroll-tax rate has been raised 20 times since 1937, seven times between 1978 and 1990.  Past increases in payroll taxes have done nothing to fix Social Security; another increase of this magnitude would effectively cripple, if not bankrupt, many small businesses and drastically reduce the take-home pay of every American taxpayer.
  • Restructure benefit formula into a Progressive-Index.  Under current law, benefits are doled out after based on a rate of wage increase adjustment, as opposed to the rate of inflation which rises dramatically slower.  Progressive indexation would gradually adjust the Social Security benefit formula so that future lower-income, more dependent retirees would collect better benefits than what current retirees receive today.  However, benefits for higher-income, less dependent retirees would be technically lower because they would be determined at a rate that only seeks to protect Social Security checks from inflation not pad them for wage increases.  Middle income worker’s benefits would be determined through a mixed-index.  Everyone would receive benefits at least comparable to a 2005 retiree.
  • Maintain a Lock Box on Social Security funds.  In 2018 every retiree will be supported by two workers.  However, when Social Security began there was a ratio of 15 workers paying in for every one retiree withdrawing benefits, thus creating a surplus that was theoretically placed into a Social Security trust fund.  However, the trust fund is useless for saving the program from insolvency because it does not possess any assets or cash, only special issue government bonds – basically, IOUs from one part of government to another – given when funds were taken from the trust to finance other projects that the fiscal budget could not fund.   This perverse abuse of the Social Security trust fund exemplifies the government’s propensity to borrow on the margins at the ultimate expense of taxpayers.  A reform plan must mandate that funds derived from Social Security pay-roll taxes be considered in a legal lock box protected accessible only by the Social Security Administration. 

Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.


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