Social Security Reform Isn't Off-Limits Anymore

In 1994, concerned about the federal deficit, Mark Sanford decided to run for Congress. It was his first try for public office.

The young real-estate investor from Charleston, S.C., concluded that major changes would be needed to save the Social Security program. So he wrote an analysis of the problem and sent it to about 100 acquaintances. When he met a political consultant at a party, Mr. Sanford outlined his campaign plans and shared a copy of the paper.

"He called me in a panic state," Sanford says. "He asked, 'How many people did you send this to, and can you get it back?' "

Sanford had touched the "third rail of American politics." To propose any changes in Social Security was supposedly to invite defeat - and Sanford wasn't simply suggesting small fixes. He wanted Social Security funds to be privatized or invested in stocks and bonds. But to his surprise, Sanford won the Republican primary against four opponents and then won the election.

Now, four years later, the question of Social Security's future has moved center stage in Washington. In his State of the Union address, President Clinton called for using any budget surpluses to help save Social Security until Congress enacts comprehensive reform. And as legislators begin to propose different plans, the idea that significant changes must take place is gaining increasing support.

Indeed, Sen. Daniel Patrick Moynihan (D) of New York, a leading expert and influential voice on Social Security reform, proposed changes March 16 that would allow workers to invest money in a personal savings account.

"It's gone from being a third rail to something that is highly talked about," Sanford notes as he sits in his office, surrounded by photographs of his three small children. On the nights he's in Washington, it doubles as his bedroom - he sleeps on a futon stashed behind the office couch.

Sanford knows that demographics are the key to Social Security. Beginning around 2010, 77 million baby boomers will start to retire. Social Security is a pay-as-you-go program - today's workers pay for today's retirees. But while there were 41 workers per retiree in 1935, when the program started, today there are only 3.2 workers per retiree. By 2020, that ratio will be 2 to 1, according to one calculation.

The Social Security trust fund will also begin running deficits around 2012. That means that if the program isn't changed, benefits will either have to be cut or be paid from the general fund or through increased payroll taxes. The program would go bankrupt around 2029. To keep it going, the Social Security trustees say, payroll taxes would have to be raised at least 16 percent.

Sanford's proposal to reform Social Security suggests moving to a personal retirement account (PRA) similar to plans put into effect in Britain and Chile. Under his plan, each worker entering the work force after Jan. 1, 2000, would deposit 6 percent of income into a PRA, with a matching employer contribution. The accounts would be invested in mutual-fund-type portfolios, with custodians regulated by the Securities and Exchange Commission.

The idea behind Sanford's and other proposals is to get compound interest working in favor of retirees. The fund's trustees currently estimate that workers paying into the system will get a 1.9 percent annual return on average, while those born after 1948 will have a negative return. PRA backers note that since 1970, corporate bonds have averaged a 9.7 percent annual return, while stocks increased 11.7 percent yearly.

Sanford's plan is one of several bills now before Congress. Other suggestions include Senator Moynihan's proposal, which would cut the Social Security payroll tax by 2 percent, allowing workers to invest the difference in a personal savings account or increase their take-home pay by 1 percent. The remaining payroll tax would go into the general fund, from which benefits would be paid, rather than into a separate fund, as is now the case. Another idea is to keep the present system but have the government (rather than individuals) invest a percentage in private securities. A third is to keep the present system but increase taxes on benefits and gradually raise payroll taxes.

Edie Rasell, an economist at the liberal Economic Policy Institute, a Washington think tank, argues that the 75-year shortfall in Social Security is is only 2.2 percent of total payroll and could be made up by technical changes, including bringing state and local government employees into the system. Ms. Rasell says that individual accounts, especially small ones, would have administrative expenses that would eat up earnings. Plus, if the economy grows as slowly as the trustees project, she argues, the market won't see anywhere near recent growth.

Sanford believes his self-imposed term limit - he says his next term will be his last - frees him to take on such sensitive issues. "I've been able to talk about this in ways I wouldn't have if I'd thought about this being a career track," he says.

Besides, he says, being away from family several days a week has been hard on them all - especially on his wife, Jenny, who is expecting the couple's fourth child. "She's juggling all the balls at home," he says. She's given more to this job than I have, frankly."

Meanwhile, Sanford's constituents aren't bothered by his Social Security politics. He ran for his second term all but unopposed and received 96 percent of the vote. "If Social Security was truly the third rail of politics, we wouldn't have seen that kind of vote count," he says.