(Editor's Note: This is part of the text of a Social Security reform bill introduced in the 107th Congress by Rep. Jim DeMint (R-S.C.) and then-Majority Leader Dick Armey (R-Texas). DeMint's forthcoming bill for the 108th Congress will be based on the previous bill.)
Social Security Ownership and Guarantee Act of 2001 (Introduced in House)
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS- The Congress finds the following:
(1) Social Security is a defining American promise that must be kept. It was one of the most successful government programs of the 20th Century, and it must always honor its founding purpose of protecting the elderly from poverty and bringing dignity to retirement.
(2) Social Security provides essential income security through retirement, disability, and survivor benefits for over 45,000,000 Americans of all ages, without which nearly 50 percent of seniors would live in poverty.
(3) Social Security is of particular importance for low earners, especially widows and women caring for children, without which nearly 53 percent of elderly women would live in poverty.
(4) Social Security is unsustainable in its present form. The Board of Trustees for Social Security projects that the program's obligations will exceed its annual tax revenue starting in 2016. While the government will continue to pay full benefits through 2038 using general tax revenues owed to the Social Security trust funds, the long-term financing problem for the government will begin in 2016.
(5) The primary reason for this financial shortfall is demographic: the post-World War II baby boomers will begin retiring in less than a decade, and people are generally living longer lives. These changes will drastically reduce the number of workers supporting each retiree. In 1960 there were more than five workers paying into Social Security for every individual collecting benefits. Today, demographic changes have reduced the worker-to-beneficiary ratio to 3.4 to 1. By 2050, it will be just 2 to 1.
(6) If reforms are not made, Social Security payroll taxes will have to be raised by 50 percent to balance the system over the next 75 years. When Social Security was first started, its tax was never supposed to go higher than 6 percent of workers' income. Today, it is over 12 percent and if something is not done, it will go to over 18 percent.
(7) If reforms are not made and taxes are not increased, Social Security benefits will have to cut by 33 percent to balance the system over the next 75 years.
(8) If reforms are not made, younger workers will receive lower benefits for every dollar they pay. The inflation-adjusted rate of return averaged more than 25 percent annually for Social Security's first retirees in the 1940s but are estimated to average roughly 4 percent for today's retirees, roughly 2 percent for `baby boomers,' and 1 percent for those who will be born 40 years from now. Since these figures do not include the extra cost of meeting Social Security's needs from 2016 to 2038, real rates of return for younger workers will likely be even lower.
(9) The Social Security trust funds will not solve the problem. The Social Security trust fund balances are available to finance future benefit payments only in a bookkeeping sense. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the general budget that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Social Security trust fund balances does not, by itself, have any impact on the Government's ability to pay benefits.
(10) Faster economic growth will not solve the problem. Under the faster-growth estimates of the Social Security Board of Trustees, permanent cash-flow deficits would be delayed by only one year, to 2017. Even if every economic and demographic variable were changed to reduce costs, permanent deficits would begin in 2020.
(11) Inasmuch as payroll taxes already constitute the single largest tax burden for most American families, further tax increases would not result in a sustainable program and would further burden employers. This would especially affect small businesses and harm job creation. Americans already pay far too much into Social Security for what they receive.
(12) Changes to Social Security's benefit structure to maintain solvency such as reductions in cost-of-living adjustments (COLAs) would reduce benefits for current retirees who depend most heavily upon Social Security for their retirement income.
(13) Changes to Social Security's benefit structure to maintain solvency such as increases in the Social Security `normal retirement age' which is currently increasing from age 65 to age 67 would make Social Security a poorer deal for hard-working Americans. Workers who are in more need of earlier retirement, such as police officers, firefighters, and manual laborers, would be especially harmed by increases in the age of eligibility for Social Security benefits.
(14) Changes to Social Security's benefit structure to maintain solvency that negatively impact disability and survivors benefits would harm the most vulnerable and disadvantaged Americans. Modernization must not reduce Social Security's disability and survivors benefits.
(15) Social Security is currently a government-controlled, government-owned program that does not save a penny for workers' retirement. Instead, it requires each generation to support the generation that came before it. With demographic changes, this structure passes on higher taxes, fewer benefits, and lower rates of return to younger Americans. In order to save Social Security for tomorrow's retirees, Americans must be able to save and invest more.
(16) Allowing the Federal Government to invest workers' payroll taxes in private financial assets invites political interference and conflicts of interest in investment decisions, and will reduce economic efficiency. Social Security was not designed to facilitate saving, and the political process cannot be relied upon to invest on behalf of American families.
(17) According to the United States Supreme Court, Social Security does not currently offer Americans any guarantee that they will receive their benefits. Instead, Americans have only a promise that Congress can change at any time, by any amount, and for any reason.
(18) Social Security is creating a culture of dependency. As the population ages, more and more Americans are becoming dependent on the government for their retirement income. This trend robs Americans of their freedom, independence, and dignity.
(19) Personal retirement accounts would enable workers to start saving real economic assets for the first time, locking them away so they cannot be spent on non-Social Security programs.
(20) Personal retirement accounts would generate higher returns on the taxes currently paid into Social Security, drastically reducing the financial shortfall in the system and paving the way for a fully funded system that is permanently self-sustaining.
(21) Personal retirement accounts would transform Social Security from an `IOU' into real assets that individuals could own and pass along to their children.
(22) Personal retirement accounts would correct Social Security's inequities for the poor, minorities, and women by offering them ownership, independence, and access to wealth.
(b) STATEMENT OF PURPOSE- The purpose of this Act is to preserve and strengthen the Social Security program through the creation of individual social security accounts that will--
(1) ensure the payment of Social Security benefits promised under current law or greater benefits to all eligible workers and their families;
(2) empower Americans with ownership, independence, and access to wealth in retirement with personal account assets, which future Congresses cannot redirect for any other purpose; and
(3) provide for the long-run solvency and sustainability of the Social Security program.