Liberal Democrats in Congress and Clinton love to attack Republican
proposals for Social Security reform. In their quest for votes, they
stoke the fears of older Americans by telling them that Republicans want
to destroy Social Security by allowing Americans choices in providing
for retirement. Most Democrats and some Republicans rank Social Security
with God, motherhood and apple pie.
Few people know that about 5 million Americans employed by state and
municipal governments do not pay into Social Security. Under the
provisions of the 1935 Social Security Act, state and municipal
governments could opt out. This Social Security loophole was closed in
1983; however, Congress permitted those 5 million employees, as well as
about 100,000 clergy, to remain exempt from paying into Social Security.
Part of President Clinton’s plan to “save” Social Security, and
championed by Sen. John Breaux, D-La., is to force previously exempted
employees into Social Security. If 5 million more workers are forced
into the system, it would bring in an estimated $11 billion over 5
years. Instead of Social Security collapsing in 2030, it would collapse
in 2032 and there’d be 5 million more Social Security obligations.
Clinton and Breaux’s proposal is standard for any Ponzi scheme — to
keep the scheme going, you have to round up more participants.
Last April, 12 senators, including five Democrats — Diane Feinstein,
D-Calif.; Barbara Boxer, D-Calif.; Christopher Dodd, D-Conn.; Richard
Durbin, D-Ill.; and Edward Kennedy, D-Mass. — descended on the White
House to demand that President Clinton not support forcing 5 million of
their constituents into Social Security. They warned of the adverse
impact on employees in terms of lower rates of return and lost
J.T. Young, chief economist for the U.S. Senate Republican Policy
Committee, points out a real-life example of the inferiority of Social
Security compared to municipal pensions. San Diego city employees are
required to put at least 3 percent of their salary into a pension plan
(and may contribute up to 7 percent). Say that a worker with a constant
salary of $32,000 puts a minimum of 3 percent of his salary into a
defined-contribution plan that goes into a mutual fund paying an annual
rate of 7 percent. Upon retirement, that worker will have $293,385 in
constant dollars. Such a return is far superior to Social Security’s
zero to 2.5 percent rate of return.
If currently exempt workers are forced into Social Security, they’d
also lose the flexibility of their municipal pension plans. Municipal
pension plans typically award partial benefits for partial disability.
Social Security provides benefits only when the individual becomes
totally unemployable. People in high-pressure jobs like police and fire
fighting sometime require early retirement. Under Social Security,
retirement benefits are not available until age 62. It doesn’t take a
rocket scientist to figure out why municipal employees don’t want to be
in Social Security.
But what are we to make of Democrats who criticize Republicans for
proposals that would begin the process of allowing American workers to
find a deal better than Social Security while at the same time fighting
to keep their 5 million constituents from being dragged into the Social
Security rat hole? At best, they’re a little more than forked-tongue
When politicians boast to you about the wonders of Social Security,
you should ask them: “If Social Security is so wonderful, how come
people have to be pulled kicking and screaming into it? If it’s so
wonderful, how come you’re petitioning Clinton to spare your municipal
employee constituents from being pulled into it?” I bet they will fork
you gibberish for answers.