Washington, D.C. – Citizens Against Government Waste (CAGW) today joined President Bush and millions of Americans in the call for Congress to implement a sweeping Social Security reform plan.  In 13 years, Social Security will begin paying out more in benefits than it collects in payroll taxes.  At that point, the federal government, which already faces a $7.8 trillion national debt and deficits for years to come, will have to bridge a 75-year, $12.8 trillion shortfall by cutting benefits or raising taxes to keep Social Security solvent. 

CAGW supports four principles of Social Security reform to encourage individual responsibility in retirement planning, protect workers from crushing tax hikes, and guarantee a livable income for lower-income retirees:

• Enforce a lock box for Social Security taxes.  Since its inception in 1935, Social Security has collected more in taxes than it has paid in benefits; this surplus was supposed to be placed in a trust fund for future retirees.  However, Congress has squandered, and continues to waste, every cent of the surplus on general government expenses.  A reform plan must mandate that Social Security taxes be locked away and used only for payments to Social Security beneficiaries. 

• No tax increases.  According to the Social Security Administration, for the current system to remain solvent benefits would need to be cut by 35 percent or payroll taxes raised by 50 percent, amounting to $27 trillion – or an additional $104,810 per family – to overcome the predicted insolvency.  The payroll tax rate has already been raised 20 times since 1937, seven times between 1978 and 1990 alone.  Tax hikes are a way to prolong rather than fix the problems of Social Security.  Continual increases of this magnitude would effectively cripple, if not bankrupt, many small businesses and drastically reduce the take-home pay of every taxpayer.

• Personal Retirement Accounts (PRAs) must be financed from existing payroll taxes.  “Carve-out” accounts would allow workers to divert a percentage of their current payroll taxes into a mixed PRA portfolio of low-risk mutual funds and government bonds, earning a higher rate of return than the current system.  Some members of Congress are proposing so-called “add-on” accounts, funded from other sources of government revenue.  Add-on accounts would make matters worse by increasing the financial obligations of a debt-strapped government.  Another form of add-on accounts would allow tax-shielded investments on a portion of income beyond the current payroll tax, but this is just another version of IRA and 401(k) plans already available. 

• Institute a progressive-index benefits formula.  Progressive indexing would slow the growth of benefits for middle- and upper-income Americans while promising a benefit to keep lower-income retirees above the poverty line.  The benefits of upper-income workers (those who earn over $100,000 today) would increase at the rate of inflation, instead of at the rate of wage growth as they do today.  Future lower-income retirees, who are much more likely to depend on Social Security for retirement, would collect better benefits than current retirees receive today.  A middle income worker’s benefits would be determined through a mixed index.  Everyone would receive benefits at least comparable to a 2005 retiree. 
  Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.