Stopping the Social Security Raid

The apparent collapse of talks between the White House and Senate Democrats suggests that, though we should remain vigilant, conservative groups appear to have successfully stopped a sell-out effort to raise Social Security taxes in the name of reform.

That said, the status quo — entitlement spending projected to lead an explosion in the size of the federal government to 38% of gross domestic product by 2050 from 20% — is a rout for limited government conservatives and a disaster for the country's future.

The key to getting the reform effort back on track is to focus on the lowest common denominator problem with the current system — Congress's unconscionable raid of Social Security surpluses to fund unrelated programs. Fortunately the conservative Republican Study Committee is now proposing to do precisely that by including a commitment to stop the raid in its American Taxpayer Bill of Rights agenda announced last Wednesday.

Social Security had a severe cash crunch in 1983. Because of shifting demographics, the program was within months of not having enough money coming in to pay benefits. The government solved its problem by making the problem for workers worse — it raised taxes, cut benefits, and increased the retirement age.

The result was large and growing cash surpluses — more money coming into Social Security in payroll taxes than going out in benefit payments. But Social Security is a pay-as-you-go system, which means that the taxes that come in each year are used to pay benefits for retirees that year. There is no mechanism for investing any excess funds that are left over.

Surpluses, which in theory should fund benefits for future retirees, are instead raided by Congress and squandered on unrelated spending programs. The late New York senator, Daniel Patrick Moynihan, called this "outright thievery."

Here's how the raid works: The surplus payroll tax dollars go into the Social Security Trust Fund, which in turn uses them to buy special issue bonds from the U.S. Treasury.

Then Congress can use those dollars, in the Treasury, to spend on anything it wants. All that Social Security has are the bonds. The bonds pay interest, but Congress raids the interest, too, by simply placing more bonds in the trust fund. The trust fund itself is a filing cabinet in West Virginia — it doesn't have any real funds in it and you probably shouldn't trust it.

President Bush explained this pretty well in a speech in 2005: "You pay your payroll tax, we pay out to current retirees, and then we spend your money on other government programs."

In 2006 this thievery reached a milestone, passing the staggering number of $1 trillion used for programs other than Social Security since 1983. And that's not including interest. That enormous amount of money has allowed both parties in Congress to fund innumerable wasteful programs and pork-barrel projects while concealing the size of the deficit.

Social Security is expected to remain in cash-flow surplus for the next decade, and the raid is scheduled to continue. Under present law, Congress will raid Social Security funds to the tune of $693 billion over the next decade, not including interest. If a tax-increase deal did come together, it would amplify the size of the larceny while doing nothing to make Social Security a better deal for workers.

Enter the Republican Study Committee. While the committee has not yet introduced specific legislation, the group, which has over 100 members, has defined stopping the raid as one of its key policy priorities, saying: "The RSC will propose legislation this year making it against the law to spend Social Security money collected from Americans on anything other than Social Security."

The committee's bill likely will be very similar to a bill sponsored in the last Congress and recently reintroduced by a Republican Study Committee member, Rep. Marsha Blackburn of Tennessee, that could form the foundation of a broad consensus to end the raid. Her bill, H.R. 581, would prohibit Congress from spending Social Security surpluses and form a bipartisan commission to consider the best use of those funds.

Some ideas the commission could consider include using the surplus for future individual accounts that have been proposed by Senator DeMint of South Carolina and Rep. Paul Ryan of Wisconsin; centralized investment in stocks or corporate bonds as President Clinton suggested, or perhaps the Head Start Retirement Accounts, savings accounts for children under age18, that are being promoted by Larry Hunter of the Institute for Policy Innovation. In the meantime, the Social Security surpluses would remain protected in a segregated account.

Fifty years ago, there were 16 workers for every retiree. Now there are three, and soon there will be only two. If Social Security continues to be a transfer payment, it will place an incredible strain on workers in the medium term, which would derail economic growth. Social Security simply cannot be propped up in its present form without damaging American workers and the economy. Structural reform is needed, and the first step toward broader reforms is to stop the raid.

Mr. Kerpen is policy director for Americans for Prosperity.