Former Bush Social Security adviser says ‘ship has sailed’ on personal retirement accounts

The former Social Security adviser to President George W. Bush says that Bush’s signature proposal for personal Social Security retirement accounts may no longer be tenable and might have to be set aside when political leaders next get around to trying to fix the nation’s troubled retirement system.

In an interview with The Daily Caller, Charles Blahous, who helped Bush craft and promote the accounts, indicated that while the personal accounts were doable while Bush was still president, the current deficit makes the idea less practical today.

“We may now be in a place where that ship has sailed,” he said. “Taking on any advance funding of future liabilities may be a bridge further than we can go.”

The accounts, which would have included an option for investment in the stock market, lit a firestorm when Bush proposed to make them part of Social Security reform legislation in 2005. Democrats trained their fire on the accounts, accusing Bush of wanting to “privatize” Social Security. Many Republicans, including Blahous, believe Democrats used the accounts proposal as an excuse for refusing to negotiate with Bush on Social Security reform.

Bush’s proposals failed, and the death of his top domestic priority is widely credited with helping cripple his domestic agenda for the remainder of his term.

Blahous noted Democrats refused in 2005 to discuss a Senate proposal that did not include the accounts. “It wasn’t that they wanted to talk to talk about other ideas but not Social Security accounts,” he said. “It was a total shutdown.”

Bush’s plan, which Blahous still supports in theory, might not work today because initiating the accounts requires upfront funding from the federal government, which is more difficult to do when the top priority in Washington currently is cutting deficits.

As explained in Blahous’s new book, “Social Security: The Unfinished Work,” funding personal accounts with existing Social Security taxes requires the government to either take on more debt or divert spending from existing programs – the latter being the method preferred by Blahous — since Social Security taxes currently are not saved but instead spent by the government.

This is one of several facts about Social Security – explained in detail in Blahous’s book – that are commonly understood by Social Security experts but misperceived by many in the general public.

Social Security is a “pay-as-you-go” system, and was never intended to be anything else. People do not contribute funds while they work and then retrieve them at retirement. Instead, current workers fund current retirees.

According to Blahous, Bush’s effort to introduce the accounts was meant in part to make the system more equitable between generations by making current workers save for their own retirement.

This “pre-funding” would have forced the government to start paying some of its Social Security obligations today – by putting money into the accounts — rather than scrambling for the money down the road.

The scramble that lies ahead is the heart of Blahous’s book, which argues that  saving Social Security requires immediate action as Social Security taxes are spent instead of saved.