Another Dividend of the Free Enterprise System

The free enterprise system, social security reform, free market system and supply-side economics...these are all terms and great ideas and practices that are being bantered about in various media circles these days. And the President, in his State of the Union message, restated the principle of the benefits of the economic power of supply-side incentives that is... to work, save, and invest, all which combine to grow the economy. In fact, the President proposes to make the 2003 tax cuts permanent, which means permanently lower tax rates on personal income, investor dividends, and capital gains, as well as the elimination of the estate tax. And also, the President is determined to do something to fix and reform Social Security before the problem in the long term is no long manageable.

It appears that the President is firmly committed to the supply-side concept based upon reason and the facts of reality. According to Larry Kudlow in a February 4 column stated, that the private sector, which is approximately 80 percent of the total economy, expanded at a 5.4 percent rate for the year 2004 following the passage of the 2003 tax cuts. And the Federal Reserve has kept core inflation at a minimum 1.5 percent and unemployment at a low 5.4 percent. Based upon these facts, no one can deny that the economic power of supply-side incentives is working and working well. And the operating principles of the free enterprise system under gird the health and vitality of our supply side economy. And the dividends of our economy are apparent.

Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference regulation. It enables individuals and businesses to create, transform, develop, innovate and compete in the marketplace. As they are able and willing, enterprising people produce goods and services for profit, offer their labor for wages, own the resources needed to produce and sell goods and services and to save and invest as they see fit. In this system, no one forces people to be creative, productive or enterprising; instead, individuals pursue what they believe to be best for them. In the free market system, the government doesn't organize, direct and control economic actively...the people do. The market system features consumer sovereignty; it is the people who decide what will be produced by casting their dollars for the things they want and the services they select to use. It is in the free enterprise system where men and women have the opportunity to own economic resources and to use these tools to create a degree of financial security for themselves and, in the long term, for their family or others of their choosing. The dividends are apparent and there are aspects of the Social Security System that can be just such a tool.

The President has described Social Security, a 70-year old retirement and disability program, as a program which requires reform and fixing. Charles Krauthammer, well known columnists stated that "within 20 years or less, the baby boom generation will begin earning more in Social Security benefits than workers are expected to be paying in Social Security taxes," a shortfall forecast to increase every year from then on. According to a recent CNN/Gallup Poll, 72% of Americans believe that Social Security faces a crisis or has major problems; and in a recent Harris Poll, 89% of the public supports reforms to the Social Security System.

To ease the long-term shortage, the Administration wants to provide a means whereby workers could, if they so choose, divert about a third of their share of Social Security taxes into personal retirement accounts. Individuals would get to keep everything they set aside in their personal accounts, plus the increased rate of return they'll realize on their investment. It is the individual's own account or that of the individual's estate. And thus, if this were approved, younger workers would be able to divert part of their Social Security payroll tax contributions into personal investment accounts which would allow the investment to grow more than if it has remained in the traditional system. And that is another dividend of the free enterprise system. That is how we see it FROM OUR PERSPECTIVE.