Gingrich: Young Workers Should Be Able to Opt Out of Social Security
GOP presidential candidate Newt Gingrich unveiled a strategy Monday to allow young workers to contribute to privatized retirement accounts as part of a plan to phase out entitlement programs such as Social Security.
Speaking at the New Hampshire Institute of Politics at Saint Anselm College, he asked the crowd, “I just want to say to every young person in America, why would you want to have an account where for the next 50 or 60 years some politician is going to tell you whether or not you're going to get your own money back?"
He then unveiled a plan that would allow them to establish 401(K)-style accounts to invest and manage the money they currently contribute to social security.
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“You can put them in very conservative bonds only, you can put them in much more aggressive and have stock only, some mix of stocks and bonds, it will be your choice,” he told the crowd.
Gingrich is not the only presidential candidate who has tried to appeal to young workers through the Social Security debate. Texas Gov. Rick Perry said in an Iowa stump speech that Social Security “is a Ponzi scheme for these young people. The idea that they're working and paying into social security today, that the current program is going to be there for them, is a lie.”
Social Security, created in 1935, is designed to create a safety net for older Americans with money collected through U.S. payroll taxes.
However, a Social Security Administration 2003 congressional report revealed trustees project the administration’s cash flow to “turn negative in 2018.” Additionally, SSA trustees projected that funds are “expected to be exhausted by 2042.” The shortfall is the result of the declining number of workers paying into the system compared to the number of retired workers.
Cato Institute Senior Fellow Michael Tanner wrote in a National Review article that the age-old benefit for elderly workers is not exactly comparable to a Ponzi payout system because the U.S. government can cover the loss of investors by mandating that new workers pay more taxes to make up the difference.
However, the federal program may be headed for a Ponzi-like collapse, because Social Security is set to face more than $20 trillion in unfunded future liabilities, Tanner said.
Gingrich said his model would build on the successes of Texas and Chile where “workers contribute to personal accounts and received double the benefits that they would have under traditional social security models.”
Market studies, the Gingrich campaign contends in its 49-page plan, show that the standard, long-term investment returns on the average income of a two-income earning couple would accumulate to “several hundred thousand dollars” over a career depending on how taxes are paid into the account.
The George W. Bush-era plan to privatize Social Security was criticized as not likely to yield the rate of return necessary to make it a viable alternative to the federal system unless, as Nobel prize-winning economist Paul Krugman stated, the economy began to grow at a faster rate.
In 2008, the U.S. economy faced a recession, further proving to critics that private retirement accounts are too risky a proposition.
The Gingrich campaign countered that the Chilean Model and U.S. pension plans, both of which have endured economic hardships, have since recovered and are still “enjoying much higher benefits than Social Security.”
Also, Gingrich’s plan, which borrows from Rep. Paul Ryan’s (R-Wis.) plan, would mandate that all personal accounts be guaranteed by the government.
“If someone with a personal account retires with benefits lower than those offered by the current system, the Treasury will send them a check to make up the difference,” Gingrich’s plan states. “Thus, there is a legal government obligation that in a worst case scenario a retiree will be able to enjoy benefits at least as good as they would under the traditional Social Security system.”
Despite the guarantee, Gingrich adviser Peter Ferrara told the New Hampshire audience Monday the plan would reduce federal spending by 50 percent over 30 years.
Gingrich is currently leading the field of potential GOP presidential nominees in an USA Today/Gallup Poll released Monday with 22 percent. Romney is close behind with 21 percent.
