In New Hampshire on November 21, Newt Gingrich, who has just been endorsed by the Manchester Union Leader, unveiled sweeping entitlement reform proposals, discussed in a comprehensive, extensive campaign position paper now available at Newt.org. Those proposals reflect closely my own work over many years, discussed in detail in my recent book, America’s Ticking Bankruptcy Bomb.
These reforms taken together would reduce federal spending over an extended period of years by half from what it would be otherwise, solving America’s entitlement and fiscal crisis. Yet, these reforms are politically feasible, indeed even popularly appealing, because seniors and the poor would actually gain from them. In fact, they are all based on already enacted reforms, in the U.S. or elsewhere, that have been proven to work in the real world. Remember that even libertarian godfather Friedrich Hayek supported the concept of safety nets for the truly needy, as did Reagan.
The key is that the reforms are all based on modernizing our old fashioned, tax and redistribution entitlement programs to rely on 21st century modern capital, labor, and insurance markets instead. Through such fundamental structural reforms, changing the way the programs work and operate, we can achieve all of the social goals of these entitlement programs far more effectively, serving seniors and the poor far better, at just a fraction of the current cost of those programs. Consequently, we can actually achieve vastly greater reductions in spending than we could ever hope to achieve simply by trying to cut benefits.
These reforms all work more effectively to achieve their goals because they operate through market incentives, productive savings and investment, and competition, rather than simple tax and redistribution. They also all work to contribute to economic growth and prosperity today, rather than detracting from it.
Personal Account Prosperity to Replace the Payroll Tax
Gingrich proposes reforms that would empower workers with the freedom to choose to save and invest what they and their employers would otherwise pay into Social Security in personal savings, investment, and insurance accounts. My own studies with various colleagues over the years show that at standard, long-term, market investment returns, for an average income, two-earner couple over a career, the accounts would accumulate to close to a million dollars or more, depending on how big the account option is. Even lower income workers could regularly accumulate half a million over their careers.
Those accumulated funds would pay all workers of all income levels much higher benefits than Social Security even promises let alone what it could pay. That includes one earner couples with stay at home moms caring for the children. Retirees would each be free to choose to leave any portion of these funds to their children at death.
In retirement, benefits payable from the personal accounts would substitute for a portion of Social Security benefits based on the degree to which workers exercised the account option over their careers. This is where the spending savings come in. The personal accounts don’t just reduce the growth of government spending. They shift vast swaths of such spending from the public sector altogether, to the private sector.
Gingrich proposes to start the accounts focused on younger workers first. But over time the accounts would be expanded to take over financing for all of the benefits financed by the payroll tax today. That would ultimately amount to the greatest reduction in government spending in world history.
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THIS ARTICLE IS POSTED BY ALLEN WEST REPUBLIC AND IN NO WAY SHAPE OR FORM IS VIEW’S OR STANCES BY CONGRESSMAN ALLEN WEST