Porcu de Tufa comploteaza impotriva SS
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that Social Security benefits paid to future retirees must be significantly
reduced. (Text of the memo)
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Memo on Social Security
January 5, 2005 7:24 p.m.
This is the full text of the memo from Peter Wehner, President Bush's
director of strategic initiatives, on the White House's plans for Social
Security reform:
From: Wehner, Peter H.
Subject: Some Thoughts on Social Security
I wanted to provide to you our latest thinking (not for attribution) on
Social Security reform.
I don't need to tell you that this will be one of the most important
conservative undertakings of modern times. If we succeed in reforming Social
Security, it will rank as one of the most significant conservative governing
achievements ever. The scope and scale of this endeavor are hard to
overestimate.
Let me tell you first what our plans are in terms of sequencing and
political strategy. We will focus on Social Security immediately in this new
year. Our strategy will probably include speeches early this month to
establish an important premise: the current system is heading for an
iceberg. The notion that younger workers will receive anything like the
benefits they have been promised is fiction, unless significant reforms are
undertaken. We need to establish in the public mind a key fiscal fact: right
now we are on an unsustainable course. That reality needs to be seared into
the public consciousness; it is the pre-condition to authentic reform.
Given that, our aim is to introduce market reforms in Social Security and
make the system permanently solvent and sustainable.
We intend to pursue the first goal by using our will and energy toward the
creation of Personal Retirement Accounts. As you know, our advocacy for
personal accounts is tied to our commitment to an Ownership Society -- one
in which more people will own their health care plans and have the
confidence of owning a piece of their retirement. Our goal is to provide a
path to greater opportunity, more freedom, and more control for individuals
over their own lives. That is what the personal account debate is
fundamentally about -- and it is clearly the crucial new conservative idea
in the history of the Social Security debate.
Second, we're going to take a very close look at changing the way benefits
are calculated. As you probably know, under current law benefits are
calculated by a "wage index" -- but because wages grow faster than
inflation, so do Social Security benefits. If we don't address this aspect
of the current system, we'll face serious economic risks.
It's worth noting that wage indexation was not part of the original design
of Social Security. The current method of wage indexation was created in
1977, under (you guessed it) the Carter Administration. Wage indexation
makes it impossible to "grow our way" out of the Social Security problem. If
the economy grows faster and wages rise, this produces more tax revenue. But
the faster wage growth also means that we owe more in Social Security
benefits. This has produced a never-ending cycle of higher tax burdens, even
during periods of robust economic growth. It is the classic case of the dog
chasing his tail around the tree; he can run faster and faster, and never
make any progress.
You may know that there is a small number of conservatives who prefer to
push only for investment accounts and make no effort to adjust benefits --
therefore making no effort to address this fundamental structural problem.
In my judgment, that's a bad idea. We simply cannot solve the Social
Security problem with Personal Retirement Accounts alone. If the goal is
permanent solvency and sustainability -- as we believe it should be --then
Personal Retirements Accounts, for all their virtues, are insufficient to
that task. And playing "kick the can" is simply not the credo of this
President. He wants to do what needs to be done for genuine repair of Social
Security.
If we duck our duty, it can have serious short-term economic consequences.
Here's why. If we borrow $1-2 trillion to cover transition costs for
personal savings accounts and make no changes to wage indexing, we will have
borrowed trillions and will still confront more than $10 trillion in
unfunded liabilities. This could easily cause an economic chain-reaction:
the markets go south, interest rates go up, and the economy stalls out. To
ignore the structural fiscal issues -- to wholly ignore the matter of the
current system's benefit formula -- would be irresponsible.
Here's a startling fact: under current law, an average retiree in 2050 would
be scheduled to receive close to 40 percent more (in real terms) in benefits
than an average retiree today -- and yet there are no mechanisms in place to
produce the revenue to pay out those benefits. No one on this planet can
tell you why a 25-year-old person today is entitled to a 40 percent increase
in Social Security benefits (in real terms) compared to what a person
retiring today receives.
To meet those benefit levels, one option would be to raise the age at which
people receive benefits. If we followed the formula used when Social
Security was first created -- make the age at which you receive Social
Security benefits above the average age of mortality -- we'd be looking at
raising the benefit age to around 80. That ain't gonna happen.
Another way to meet those benefit levels is through the traditional
Democrat/liberal way: higher taxation. According to the latest report of the
Social Security Trustees, the current system's benefit formula would require
some $10 trillion in tax increases over the long term. We'd therefore need
to raise the payroll tax almost 20 percent simply to provide wage-indexed
benefit levels to those born this year.
This will all sound familiar. In the past, the way Congress usually
addressed the built-in funding problem was by raising payroll taxes (from 2
percent in 1937 to 12.4 percent today). In fact, Congress has raised Social
Security taxes more than 30 times -- but it has never addressed the
underlying problem. Avoiding the core issue by raising taxes is not the
modus operandi of this President.
The other key point, as you know, is that personal accounts, through the
miracle of compound interest, will provide workers with higher retirement
benefits than they are currently receiving from Social Security.
At the end of the day, we want to promote both an ownership society and
advance the idea of limited government. It seems to me our plan will do so;
the plan of some others won't.
Let me add one other important point: we consider our Social Security reform
not simply an economic challenge, but a moral goal and a moral good. We have
a responsibility to fulfill the promise of Social Security, not undermine
it. And we have a duty to ensure that we do not create an inter-generational
conflict -- which is precisely what will happen if the Social Security
system is not reformed. We need to retain strong ties between the
generations, which is of course a deeply conservative belief.
The debate about Social Security is going to be a monumental clash of ideas
-- and it's important for the conservative movement that we win both the
battle of ideas and the legislation that will give those ideas life. The
Democrat Party leadership, the AARP, and many others will go after Social
Security reform hammer and tongs. See today's silly New York Times editorial
(its only one for the day) as one example. But Democrats and liberals are in
a precarious position; they are attempting to block reform to a system that
almost every serious-minded person concedes needs it. They are in a position
of arguing against modernizing a system created almost four generations ago.
Increasingly the Democrat Party is the party of obstruction and opposition.
It is the Party of the Past.
For the first time in six decades, the Social Security battle is one we can
win -- and in doing so, we can help transform the political and
philosophical landscape of the country. We have it within our grasp to move
away from dependency on government and toward giving greater power and
responsibility to individuals.
There are of course other important issues dealing with Social Security; for
now, though, I've covered quite enough ground. I wanted to let you know
where things stand. If you have any questions, or if we can send you
anything to clarify our plans and respond to critics, just let me know. The
President remains flexible on tactics -- and rock-solid on the principles.
But there's nothing new there.
In one of his last public acts of an extraordinary public life, the late
Democratic Senator from New York, Daniel Patrick Moynihan, co-chaired the
President's Commission to Strengthen Social Security. In the introduction of
its report, Senator Moynihan (along with Richard Parsons, his co-chair)
wrote, "the time to include personal accounts in such action [reforming
Social Security] has, indeed, arrived. The details of such accounts are
negotiable, but their need is clear.... Carpe diem!"
And so we shall.