The fiscal surplus piling up in the U.S. Treasury, courtesy of the robust economy and great bull market, will not go unspent for long. No better use could be found for this windfall than to address one of America's most pressing domestic issues: the long-term insolvency of Social Security.

What makes this matter so urgent is that many U.S. families have little or no savings. A survey done jointly by PaineWebber and the Gallup Organization indicates that one-third of Americans have no savings at all and another one-third have saved very little.

Nest eggs, when they exist, tend to be small; the median value of retirement accounts in 1995 was only $15,000, according to a Federal Reserve survey.

One solution is education. Government should spend at least as much on encouraging Americans to save for retirement as it spends urging them to buy lottery tickets. The message should be simple: Save regularly, and start early-in your 20s, not your 40s.

In addition, we should make company pensions fully portable and eliminate the Byzantine complexity of IRAs.

Of course, a key reason for anemic savings is that workers pay a huge 6.2% of their wages into Social Security, which is matched by employers.

The system requires fundamental reform because it was built for an America that no longer exists.

When it was created, life expectancy was 61 years; today, it is 76, and by 2010 it is expected to be 81. At Social Security's inception, 25 workers supported each retiree; today that ratio has dropped to 3 to 1. And since 1937 the total payroll tax has climbed from 2% to 12.4%

Reformers of Social Security are boxed in by two unyielding realities. Without some combination of higher payroll taxes and reduced benefits, by 2032 the system will probably be unable to meet its obligations to beneficiaries.

But Social Security is already a bad deal for young families, offering them a far lower rate of return than they could get by investing their payroll taxes in financial assets. It is tough for voters to support a system that taxes them heavily, offers them a poor return, but still appears headed for default.

Here is the reformers' dilemma: If they "fix" the system by the familiar "tax and trim" method-i.e., raising payroll taxes and trimming benefits- they will make the already poor rate of return for today's workers even worse.

By impoverishing Peter to pay Paul, government would further undermine support for the system, particularly because few voters would believe that the next tax hike is the last. Increasingly perceived as a Ponzi scheme that is unfair to young families, Social Security as we know it could go the way of welfare as we knew it.

Instead, we need a measured but fundamental structural reform that permits each American worker to deposit part of the payroll tax in his or her own investment account.

Making Social Security a better deal for young families would safeguard its long-term political legitimacy. Designing and implementing such retirement accounts while continuing to deliver promised benefits to current retirees is very tricky because the dollar that a 30-year-old invests in her own retirement account is a dollar that cannot be paid out to an 80-year-old retiree.

In technical parlance, it is difficult to develop a "funded" system while continuing to run a "pay as you go" system.

Fortunately, the burgeoning federal budget surplus offers fiscal leeway to create retirement accounts while still delivering promised benefits.

President Clinton and House Speaker Newt Gingrich agree that the surplus should be used to help save Social Security. Rep. Gingrich has already endorsed the concept of retirement accounts, as have several senators of both parties.

As a famous Texan has frequently reminded us, the devil is in the details. How, exactly, would investment accounts be created while Social Security's "pay as you go" system continues to meet its commitments to those who are now, or soon will be, retired?

The National Commission on Retirement Policy has created such a plan. This bipartisan panel, comprising congressional leaders, economists, pension experts, and business executives, has spent well over a year developing a detailed plan that could actually be turned into law.

By making modest changes in many areas-including, among others, the retirement age, the formula for computing benefits, and coverage of state and local government employees-our plan achieves three important things: It brings Social Security into actuarial balance for the next 70 years; it avoids raising taxes; and it lets workers divert two percentage points of the 12.4% payroll tax into private retirement accounts.

Administered by the Social Security Administration in order to minimize expenses, these accounts would accumulate funds until the worker's retirement, when he or she would buy an annuity to pay benefits during retirement.

These retirement accounts are a vital innovation that fortifies the legitimacy of Social Security by improving the return for younger workers. Although a 2% annual contribution may sound trivial, a worker earning $30,000 who invests 1% of his income in stocks and 1% in bonds and who earns the 1926-97 average real return for these asset classes would, after 45 years, have $144,144 in 1998 dollars.

Ultimately, of course, the solvency of Social Security depends on the soundness of the U.S. economy itself. Our plan would encourage economic growth by increasing the supply of both labor and capital.

With the unemployment rate moving down toward 4%, the U.S. economy needs every worker it can get. To encourage senior citizens to keep working beyond the official retirement age, we eliminate the "earnings test" that withholds some benefits from beneficiaries who keep working.

In addition, the U.S. savings rate would be boosted by the new retirement accounts. Social Security's current pay-as-you-go configuration discourages saving by taxing young families heavily and transferring the money to older people who are likely to spend it. The new retirement accounts will eventually accumulate trillions of dollars, productively invested in the U.S. economy.

Investing public pension funds in the private economy is not a risky innovation; Chile, the United Kingdom, and Australia have, in different ways, been doing so successfully for years. Canada is starting this year.

Quite understandably, however, many Americans will be concerned about investing Social Security funds in stocks and bonds, particularly after the spectacular run-up in prices since 1982. Skeptics point out that the Dow Jones industrial average did not surpass its 1929 high until 1954 and did not exceed its 1973 high until 1982.

But although it is indeed unlikely that U.S. investors will find the next 16 years as lucrative as the last 16, it is not unduly risky for younger workers to regularly invest a portion of their payroll in stocks. So long as they invest continuously, in strong markets and weak, over many years, their investment returns should not be seriously affected by swings in stock prices.

Suppose, for example, that, starting in the inauspicious year 1929, a worker invested $1,000 annually in the S&P 500 for 30 years. The $1,000 invested in 1929 would be worth just $358 in 1933. However, the $1,000 invested in 1933 would be worth $3,000 in 1937. In this way, price volatility averages out over time, and respectable long-term returns can be achieved even in difficult periods. After 30 years, for example, our hypothetical investor's cumulative annual $1,000 investments in stocks would be worth $134,117-though he invested during a catastrophic depression and two costly, inflationary wars.

As part of a broader reform plan, retirement accounts would strengthen Social Security politically and financially, bolster the U.S. economy, and insure that baby boomers-whose personal savings are, in many cases, inadequate or nonexistent-do not face indigence in retirement.

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