All of a sudden, Congress is lining up on opposite sides of the
aisle and tossing verbal brickbats back and forth on the issue of
Social Security. Republicans, somewhat complacent on reform in the
past, are now almost unanimous in their claim that reform is
critical and urgent, and Democrats, until just recently in favor of
change, now hold that we should leave it alone.
All of a sudden, Congress is lining up on opposite sides of the aisle and tossing verbal brickbats back and forth on the issue of Social Security. Republicans, somewhat complacent on reform in the past, are now almost unanimous in their claim that reform is critical and urgent, and Democrats, until just recently in favor of change, now hold that we should leave it alone. This is a really confusing state of affairs, but remember that of all the procedural rules in Congress, the one that is most seldom violated is: “Whatever one side proposes, the other rejects.”
But there are some other basic rules in politics that, if the president wants to succeed, he should observe closely. Otherwise, even if he manages to force change through Congress his Social Security program will be so chopped up that it will fail before it starts.
Rule number one. Maintain stability.
Despite its failings, government is still more stable than the stock market as perceived by the American public. To turn over the control of an individual’s retirement plan partly to his own discretion but also partly to the foibles of an admittedly volatile market is casting the working public into a cauldron of uncertainty that they will have to live with daily. Life is uncertain enough without throwing our retirement fortunes to the winds of fate, and that’s about how the American public sees the stock market.
The president will have to come up with a grand and comprehensive educational program to make the public fully conversant and comfortable with the idea of personal investing as the road to financial security before they will feel secure with this system, and in politics, perception is what it’s all about. The American public appreciates stability.
Rule number two. Do no damage. This to either the system or to those who are responsible for it. In this case, that means the political party now in the majority in Congress; whomever that may be, because the political fallout from a wrong move will be reflected and revisited for years to come. In other words, if the Republicans attach retirement funds to the economy, every time there is a down market they will not only be blamed for the market decline, but also for the failing fortunes of every person who is retiring or about to retire. When in doubt, refer to rule number one.
Rule number three. To survive and prosper one must earn more than he spends. This goes for funds and agencies as well as for individuals (except government). Neither political party wants to admit it, but to succeed, Social Security, separate from the General Fund, will have to do one or both of two things. Either increase SS contributions, from the employee (or employer), or extend the working years for the employees to reflect the extended longevity of Americans. If you overspend your income, you’re not going to stay in business very long.
Rule number four. Emulate success. In the 1930’s California came up with a couple of plans for funding the retirement of their state and local government employees, both of which have been financially successful. The plans include contributions from both employees and employing agencies of matching amounts up to 9.2 percent of the employee’s base salary, each, or a total investment of up to 18.4 percent, depending on the expected working life of the employee. These monies are considered income and are taxed as such at the time the employee, after retirement, receives them. The fund is in the hands of an agency that is free to invest it in the open market, under certain rules and regulations. The state fund, administered by an elected board, is the one with which I am most familiar, is an unqualified success and a model for similar funds internationally. The “carrot'” so far as the employee was concerned, is the provision that the employee is free to withdraw their personal contribution from the system if they resign prior to retirement age. This seldom happens, but is available at the option of the employee.
The difference between what the system has been and what it must become is in those four rules. No matter what government says, we must follow the rules set down by centuries of experience or face system failure. It only makes sense.
Bob Winter, Gilroy