John Porter

Declaring that “you can’t trust government with a surplus,” senior Republican Congressman John E. Porter has introduced sweeping new legislation that would privatize social security with a government safety net, and allow workers to control their own “retirement destinies.”

Porter outlined his views at Northwestern’s Hardin Hall on May 8 in a public lecture on “The Future of Social Security: True Retirement Security for All Americans.” It was the second in IPR’s 1998 Distinguished Public Policy Lecture series (see story, column 2).

“For today’s retirees, social security is as solid as the Rock of Gibraltar, but it is in trouble in the long-term,” he told an involved audience of academics, students, seniors, and other community members. “Consequently, young people no longer believe there will be anything in that program for them.”

By most estimates, the large currently accumulating surplus in the social security trust funds will begin to be drawn down in the year 2013, after the first of some 76 million baby boomers start retiring, and it will be depleted by 2032. Nonetheless social security payroll taxes paid by year 2032 employers and workers would be sufficient to pay 75% of retirees’ benefits.

How to keep social security strong and able to pay 100% of benefits in 2032 is the subject of a heated national debate. President Clinton made the issue a key ingredient of his State of the Union address in January and has promoted a series of national town meetings this year to seek solutions.

Porter, who is a senior member of the House Appropriations Subcommittee and chairs the Labor, Health and Human Services, and Education Subcommittee, has taken a leader-ship role on social security. Last November, he introduced

reform bill HR 2929 that would create Individual Social Security Retirement Accounts (ISSRAs) to replace the current government-controlled system.

“We can now create the social security system we would have created in 1935 if we had had the resources to do so,” Porter explained. Under his plan, American workers would own individual ISSRA accounts managed by a trustee (insurance company, stockbroker, money manager, etc.) of their own choosing. Trustees would be criminally and civilly liable to invest each individual’s funds prudently and pay them out at retirement.

IPR Acting Director Joseph Altonji (L) introduced Rep. Porter (R) and moderated the discussion.

For a worker who opts for an ISSRA account, the current 12.4% social security payroll tax (6.2% of wages paid by both employer and worker) would be redistributed. Five percent of wages each from employer and worker would be placed in that person’s retirement account. The remaining 2.4% current payroll tax would continue to be paid into the social security trust fund for 10 years and then cease. According to Porter’s calculations, this would amount to a payroll tax cut of 20%.

People under the age of 30 who elect to participate in ISSRA would relinquish their claims to the old system. Workers over 30 who opt for the new individual accounts would receive federal government recognition bonds guaranteeing them a portion of retirement benefits based on their contributions to the old system.

Among other features of the Porter plan:

- The government would guarantee workers a minimum benefit of 95% of what they would have received under the current system.

- At the retirement age of 59 l/2, the worker could purchase a lifetime annuity or make periodic withdrawals from the account balance to provide minimum benefits.

- If the worker dies, the ISSRA funds are treated as an asset in the deceased’s estate. Under the current system, the social security benefit is paid only to a surviving spouse.

Porter believes the ISSRA plan can be put into effect without a tax increase and could pay potential benefits three to four times greater than under the current system. Though he acknowledges there would be significant transition costs, he expects those deficits to disappear within 14 years, sometime after which the plan would generate a surplus.

Though the social security reserve currently totals $700-$800-billion, “it exists in IOUs,” said Porter, money that is destined for retirement benefits. Of course, the reserves could be replenished through massive borrowing—which would drive up interest rates—by cutting benefits, or raising the retirement age further, “none of which are politically viable alternatives,” he said.

Underscoring his reputation as a fiscal conservative, Porter believes “we cannot trust government with reserves or a surplus of any kind. It is irresistible for political bodies to leave resources in place for the long term. The solution is to put the reserve into the hands of American workers who earned the money in the first place.”