The 2002 congressional elections will soon be under way. With President Bush supporting fundamental Social Security reform based on a personal account option for Social Security, a key question is how Republicans and progressive Democrats will deal with this issue.

An unfortunate tendency among Republicans is just to lie low and hope the issue does not come up. This is foolhardy. Given the president\’s enormous popularity, old line Democrats are going to turn to the Social Security issue and exploit it all they can. Most likely, they will wait until the last month and conduct a media and grassroots blitz alleging that the Republican candidate will destroy Social Security after the election. Union-funded and -manned phone banks will operate day and night, telling seniors they will lose their benefit checks if the Republican candidate wins.

Most people are too smart to fall for these scurrilous, exploitative tactics. Defensive tactics denying the charges can reduce the losses. But being on the defensive on this issue is a very poor strategic position. Enough voters will fall for the Democrat attack to cost the Republican candidate a few percentage points of support. That will be enough to turn the tide in a number of elections.
There is a better approach. Republicans and reform-minded Democrats need to get out in front on the issue first and frame it positively. They need to explain that they stand with the president in supporting a highly progressive personal account option that offers great benefits for working people while securing the benefits of today\’s seniors. They should describe the fundamentals of reform to show how it would work. Then they should describe all the benefits that will flow from such reform for workers, seniors, African-Americans, Hispanics, blue-collar workers, lower income workers, and others.

With the issue framed this way, it is reactionary Democrats who are put on the defensive. Poll after poll shows that such a personal account option has broad public support. The key is that this is a wholly positive approach that will increase benefits, personal wealth, freedom of choice, and personal ownership and control. It does not involve taking anything away from anybody.

Democratic candidates who oppose reform are denying these benefits for working people and minorities. They are the reactionaries, and pro-reform Republicans and Democrats are the progressives. Moreover, candidates taking this proactive approach will have many pro-reform allies, as we will discuss below, including the highly popular President of the United States. Through this positive approach, progressive Republicans and Democrats can paint reactionary Democrats in the corner on the issue, rather than vice versa.
This is not uncharted territory. Sen. Rick Santorum (R-Pa.) has run all of his campaigns this way. Sen. Judd Gregg (R-N.H.) has long supported personal account reforms in an unabashed, high profile way, and has not been thrashed on the issue in his elections. Reps. Jim Kolbe (R-Ariz.), Charles Stenholm (D-Texas), Nick Smith (R-Mich.), and retired Rep. Mark Sanford (R-S.C.) have all campaigned positively and successfully on this issue through several election cycles.

The Positive Themes of Reform

A personal account option for Social Security would allow workers to take part of the payroll taxes they are already paying into the program and pay them instead into a personal investment account that would be personally owned and controlled by the worker. The account would be invested over the years through an established framework with the aid of major investment firms and backed up by a safety net. In retirement, that account would pay benefits that would replace part of the retirement benefits of Social Security. Candidates supporting this option should stress several positive themes.

First note that such a proposal does not involve eliminating or displacing the concept of Social Security. It need not be described as privatizing Social Security. Rather, the proposal involves expanding and modernizing the Social Security framework to bring in a role for real capital market investment and personal choice, ownership and control. This is the first positive theme.

Increasing Retirement Benefits for Working People

The central truth that compels a personal account option for Social Security is that private investment returns are now so much higher than what Social Security promises, let alone what it can pay. This means that a well-designed personal account option for Social Security will increase retirement benefits for working people. This should be a main campaign theme for pro-reform candidates.
Independently constructed models produced by the Cato Institute, Heritage Foundation and National Center for Policy Analysis (NCPA), among others, have demonstrated the sharply superior benefits provided by personal accounts. Numerous books, studies and papers support this conclusion, including prominently A New Deal for Social Security (Wash. D.C.: Cato Institute, 1998), which I co-authored with Michael Tanner.

That book shows that an average income, two-earner couple earning just over half the return earned in the stock market over the last 75 years would reach retirement with a fund of about $1 million in today\’s dollars. That fund would pay them more out of the continuing returns alone than Social Security promises but cannot pay, allowing them to leave the $1 million to their children. Or it can be used to buy an annuity that would pay them over three times what Social Security promises.

This is a measure of what average-income families are losing through the current unreformed Social Security system; $1 million over their lives, or three times the benefits Social Security promises but cannot pay.
Similar results were found for workers of all income levels and family combinations. You can check this all out for yourself at the websites for Cato (, Heritage (, and NCPA (, which include calculators where web visitors can enter their own personal data.

The New Progressivism

A personal account option for Social Security is the most progressive idea on the national agenda today. Such accounts would provide enormous benefits for low-income workers, blue-collar workers, African-Americans, Hispanics, women and other minorities. This New Progressivism should be a central theme of pro-reform campaigners as well.

Progressives have expressed great concern in recent years over a growing "wealth gap" in America. The top half of income earners have been riding the long-term capital market boom, through IRAs, 401(k)s, stock options, etc. But those among the lower half of income earners are missing out, as they do not have the funds to save for such investments. As a result, they have been falling farther and farther behind, and the distribution of wealth and income is becoming more unequal.

A personal Social Security investment account option gives lower-income earners their chance to participate in the capital markets as well. With the bottom half of income earners accumulating substantial capital for the first time, wealth and income distributions would become far more equal. Indeed, calculations done years ago by Harvard Professor Martin Feldstein indicate that shifting completely to personal accounts would reduce the national concentration of wealth by 50%.

More concretely, the personal accounts would produce far higher returns and benefits for lower-income workers, African-Americans, Hispanics, women and other minorities. This is shown as well in A New Deal for Social Security, and in groundbreaking studies from the Heritage Foundation and Cato Institute.
Of course, the government\’s own projected long-term financial crisis for Social Security means the program will be an even worse deal in the future than suggested by the discussion above. The government\’s own reports indicate that in order to pay all promised benefits to those entering the work force today, Social Security revenues will be sufficient to cover only about 50% to 70% of promised benefits. The program\’s benefits will consequently have to be cut by 30% to 50%, or taxes raised by roughly 50% to 100%, or some combination of these two, to close the financial gap. Any of these options would lower the effective rate of return paid by Social Security, making the program an even worse deal.

These results would be most harmful for lower-income workers, for these workers can least afford to pay higher taxes, or to suffer reductions in the meager benefits Social Security promises them. To the extent workers can shift to personal accounts, however, all of this would be avoided.

Finally, through personal accounts the socialist dream of the nation\’s workers owning its business and industry would be effectively achieved. But as this ownership would be direct, rather than through the government, the result would be more appropriately called worker capitalism. With minorities and other workers all owning a share of the nation\’s business and industry, they would more vigorously support open market policies that promote prosperity for everyone.

Freedom of Choice, Personal Ownership, and Other Benefits

Still another key theme to emphasize is freedom of choice, which wins even the toughest arguments on this issue in the end. All that personal accounts ultimately offer is a choice. Those who don\’t want them would be perfectly free to continue to rely entirely on Social Security as is. But those who do want them should be free to make that choice as well.

In other words, working people across the country should be able to hear all sides of the argument, for or against relying entirely on Social Security, and for or against choosing personal accounts in place of part of their current coverage under Social Security. But it is then that each individual worker who should make the final choice for him or herself. Some politician, or bureaucrat, or self-appointed ideological know-it-all in Washington should not be able to impose their choice on the rest of the country.

Yet another key theme is personal ownership and control. Each worker would personally own the funds in his or her account. The worker would exercise personal control and choice over the funds, within certain regulated limits. For example, the funds cannot be withdrawn before retirement, and must be invested through a framework involving investment by approved professionals subject to safety and soundness regulations.

By contrast, the Supreme Court has ruled, in the case of Flemming v. Nestor (1960), that workers have no contract or property rights to their Social Security funds or benefits. Congress is free to change, reduce, or cutoff benefits to anyone or everyone at any time.

The personal accounts will also strengthen Social Security financing over the long run. To the extent workers rely on personal accounts in place of Social Security, the long-term burden on Social Security will be reduced. If workers changed completely to personal accounts, then ultimately the long-term Social Security financing gap would be completely eliminated through this means, as workers would eventually no longer be relying on Social Security at all for their benefits. There is an interim, decades long, transition-financing burden that must be met, to pay all remaining outstanding benefits of the current system, while the new system is being phased in. But as has been discussed in many places, this transition-financing burden is well worth the full benefits of reform.

Finally, the personal accounts will also enhance economic growth. Increased savings through the accounts will increase capital investment, which means more jobs, increased productivity, higher wages, and faster growth. As the new system is phased in, the effective payroll tax burden can be reduced since, with the much higher returns of the private market, workers do not need to be required to pay as much into the accounts as they had to pay into Social Security. This reduced payroll tax burden will also increase jobs, wages, and growth.

A Campaign Plan of Action

Exactly how should a campaign get out in front and frame the issue on Social Security in this positive, proactive way?

Start with a speech or press conference in the spring devoted to announcing support for the president\’s personal account option. Explain there all the positive reasons why such an option will be highly beneficial for working people while protecting seniors. Utilize all the positive themes described above.
Then follow up in the campaign with specific events targeted to the Social Security issue. Speeches can be given to colleges, to groups of Young Republicans, to blue-collar workers, to minority groups. Some TV and radio ads should be devoted to the issue as well. It should be included in the campaign\’s stump speech. Again, all of this should be focused on the positive themes and benefits for working people we have discussed.

In addition, state publicly that you expect negative, reactionary, demagogic assaults by your opponent on the issue. Tell the public over and over to expect to hear negative ads and phone calls in the night hysterically claiming that offering the simple choice of personal accounts, successfully offered already in many other countries around the world, will destroy Social Security. State that you fear your opponent will attempt to take advantage of vulnerable elderly people by trying to scare them with phony claims on the issue.

Moreover, go on the offensive. State over and over that if your opponent does not favor personal account reform now, then he must be in favor of massive tax increases, or possibly benefit cuts, in the future when the government\’s own reports show Social Security will be running out of money. Declare openly that you are the progressive on the issue and your opponent is a reactionary.

This proactive, pro-reform campaign will short-circuit the usual scare tactics and demagogic counterattacks. It frames the discussion on the substantive merits of the issue, and makes negative, non-substantive scare tactics look bad. Moreover, it frames the issue in a positive winning way. The issue now becomes, are you for or against reform? Are you for or against allowing workers the freedom to choose a personal investment account for part of their Social Security which offers the prospect of much higher retirement benefits and personal ownership and control over the funds? Are you for or against a reform that offers these benefits in particular to low-income workers, blue-collar workers, blacks, Hispanics, women and others?

Moreover, by stating publicly that you expect a non-substantive, demagogic, negative attack on the issue, and explaining in advance why it is wrong, you have already negatively framed the counterattack, and rebutted it, before it even comes. This will thoroughly compromise the attack in the public\’s eye.
In this position, you will not be alone. You will be supported by a wide variety of allies. First and foremost will be the highly popular President of the United States, who has already campaigned on the issue and won.

In addition, a presidentially appointed commission of bipartisan experts has now examined the idea of a personal account option for Social Security and endorsed it. Half the commission included serious Democrat figures such as former Sen. Daniel Patrick Moynihan, former Rep. Tim Penny, and respected economists Estelle James of the World Bank and Olivia Mitchell of the Wharton School, as well as highly successful black businessman Robert Johnson. They have all spoken out in favor of a personal account option.

The commission, moreover, was staffed by experts from the Social Security Administration itself. They evaluated various personal account reform options. In each case, they concluded that the options would lead to higher benefits due to the higher returns of private investments, and at the same time would ultimately reduce the long-term financing gap of Social Security. That is an extremely important milestone on the long march to reform. The proposal for a personal account option for Social Security has now effectively gone establishment through the activities of this commission.

Several activist groups are available to provide support as well. The seniors\’ group 60 Plus, led by Jim Martin, has long endorsed a personal account option for Social Security as highly beneficial for the children and grandchildren of today\’s seniors, while not harming their current benefits. He will come to the districts of pro-reform candidates, rally grassroots seniors to come out and express their support from his network of half-a-million seniors nationwide, and praise such candidates as friends of senior citizens. He has already done this for good candidates for many years, quite successfully.

In fact, this grassroots activity is highly successful in countering the efforts of left wing front groups claiming to speak for seniors. When longstanding seniors groups support the pro-reform candidate, it levels the playing field and creates an even debate, rather than a name calling contest.

Just this past year, Martin successfully campaigned this way for Republican Randy Forbes, who supported the president\’s personal account option and won a special congressional election in Virginia. He similarly campaigned for Republican David Boozman, who also supported personal accounts and won a special election in Arkansas. In both these races, the Democrats did all they could to demagogue the issue and lost.

Charley Jarvis and the United Seniors Association is another long-established seniors group with over half-a-million active members nationwide, which supports a personal account option. He and his group will support pro-reform candidates in the same way as Martin.

Then there is cash on the table. The For Our Grandchildren campaign is raising millions that will be focused on grassroots organization and campaigns that support personal accounts. They entered the Boozman race in Arkansas in the last two weeks with $25,000 spent on phone banks to call seniors and counter the demagogic attacks of his opponent. They plan to target the 15 to 20 congressional races where the Social Security issue is hottest in this election cycle, and use their funds to help the pro-reform candidate.

In addition, the Club for Growth, headed by Steve Moore in Washington, gathers campaign contributions from its established nationwide network to support pro-reform candidates on Social Security, as well as taxes and school choice.
Social Security reform based on personal accounts is also a priority for Americans for Tax Reform and its president, Grover Norquist. ATR can provide intellectual and networking resources for pro-reform candidates. It can also help provide in-district speakers and experts for in-district radio talk shows. Then there are the think tanks that have long supported personal accounts – Cato, Heritage and NCPA in particular. They are a deep reservoir of intellectual firepower.

The Social Security issue is now teed up for candidates to run on and win. In doing so, they will be running with the tide of public opinion and as heralds of a wave of reform that is surging worldwide. Those who support personal accounts now will be the leaders who brought such historic change to America, with enormous long-term benefits for the people. Isn\’t that why candidates run, to be part of making history happen, rather than just lying low and letting it pass by?

Peter Ferrara, associate professor of law at the George Mason University School of Law, is also a senior policy advisor to Americans for Tax Reform (ATR), and research director of the For Our Grandchildren campaign. This is the eighth in a regular series of Social Security strategy memos by Professor Ferrara distributed nationally by ATR.

For copies of the entire series of Professor Ferrara\’s Social Security memos, contact Robert Funk at (202) 785-0266 or by email at [email protected].