Peter Ferrara

Indexing Social Security benefits to the growth of prices is politically indefensible. Even with small personal accounts, price indexing would result in even lower returns for workers, and likely to lead to tax increases. A far better alternative are large personal accounts, which would make price indexing completely unnecessary. Such accounts would provide workers with much higher returns than under the current system, and restore Social Security to permanent solvency.

The total Social Security trust fund surplus would immediately fund 3.2 percent personal retirement accounts, stopping the spending raid on the trust fund and starting the personal accounts so broadly supported by the public. This would begin to solve Social Security’s unfunded liability problem while leaving the door open to a future extension of the accounts or other steps necessary for a comprehensive solution.

Everyone should know by now that Medicare suffers dramatic long-term deficits and unfunded liabilities, and is in need of fundamental, structural reforms. But effectively refusing to pay the doctors and hospitals that provide the medical care the program promises to seniors is no way to solve that problem.

The well-kept secret of health policy over the past year is that the uninsured can be covered at relatively modest additional net cost, without the government takeover of health care, rationing, or any new health care bureaucracy, all of which were essential to Obamacare.

If any of the estimated $1.5 trillion in retained overseas earnings of American companies are returned home, they are taxed at the federal corporate tax rate of 35%, one of the highest in the world, besides taxes paid to the host countries. Repeating the highly successful 2005 tax repatriation allowing these funds to come home subject to a 5.25% rate would bring hundreds of billions in new capital into the America economy.

Simply trying to cut promised entitlement benefits is not a promising reform strategy. The solution lies in fundamental structural reforms to create new safety net programs that would be far more effective in achieving social goals, with only a fraction of the spending of current programs. This is the key to making entitlement reforms politically feasible.

Bush advanced personal accounts for Social Security during his 2000 campaign, focusing solely on the personal accounts and their benefits for working people, and contrasting them with the alternatives of tax increases and benefit cuts. But once elected, he allowed this reform model to be displaced by tax increases and benefit cuts as the core of reform, with personal accounts as the “dessert.” This left the reform without the grassroots appeal to overcome the opposition on such a politically sensitive issue as Social Security.

We will not get personal retirement accounts through tax increases, or cuts in future promised benefits. Quite the contrary, it was including these options on the table that actually killed the campaign for personal accounts. So it is those would-be reformers who misled the President down this pain caucus highway who should be held responsible for any future tax increases that will result due to the failure of reform now.
The only way to achieve personal accounts is to go back to the positive, populist reform model on which George Bush was elected. Propose a specific personal account plan, without tax increases or benefit cuts, that obviously benefits working people overwhelmingly. Then take that over the heads of the Washington establishment directly to the people, as Reagan did so successfully.

Fear of projected fiscal problems is driving many policy thinkers, including some prominent conservatives, to accept the inevitability of large tax increases as a partial solution. This course is a mistake, as it will lead to economic stagnation. Instead, conservatives should confidently advocate the package of reforms presented in this study that will deliver superior benefits to U.S. taxpayers and citizens.