A Gingrich Alternative to Social Security

Original Link: http://thecaucus.blogs.nytimes.com/2011/11/21/gingrich-backs-private-accounts-as-social-security-cure/

By TRIP GABRIEL

Contending that Social Security provides “a dismal return” to retirees on a lifetime of “burdensome tax payments,” Newt Gingrich proposed giving younger workers the option of a private savings account.

Mr. Gingrich, who is leading the Republican presidential field in some recent polls, revived an idea long popular in conservative policy circles, and he made the case that privatization would both rescue Social Security and provide more comfortable retirements thanks to the returns of stocks and bonds.
“This gives Americans ownership over their retirement and the opportunity to unleash the power of the market to enjoy prosperous retirements beyond their most optimistic expectations, while also wiping out all future liabilities in the Social Security system,” Mr. Gingrich argued in a policy paper he presented Monday in New Hampshire.

The high cost of entitlements is a major target of all the Republican hopefuls. Earlier, Gov. Rick Perry of Texas, who has called Social Security a Ponzi scheme, proposed letting younger workers open personal savings accounts. Mitt Romney has advocated raising the retirement age for future workers and slowing increases in benefits to richer retirees.

Rather than raising the age to receive benefits, Mr. Gingrich argues that Social Security’s fiscal challenges can be entirely met by personal accounts. They will pay higher benefits than the current system, he says, thanks to the appreciation of stocks, bonds and the like.
But won’t benefits be subject to the ups and downs of markets? Would a worker want to give up a defined-benefit program like Social Security after seeing stocks lose nearly 40 percent of their value after the financial crisis? Mr. Gingrich argues in his 48-page position paper that a long-term investor would still come out ahead.

But Paul N. Van de Water, an economist with the Center on Budget and Policy Priorities, said that if younger workers withdrew from Social Security, there would be a huge gap in payments for current retirees. Such concerns helped kill President George W. Bush’s proposal for individual retirement accounts in 2005.

“It’s basically impossible to design a private-account plan that doesn’t either require huge federal borrowing for a long time to make up the shortfall to the existing Social Security program or have very sharp cuts in benefits, or a bit of both,” Mr. Van de Water said.