President George W. Bush's pledge in his State of the Union Address to make Social Security reform a priority is a welcome step. For the first time, the President made clear that the personal accounts he has described in the past should be financed with a portion of workers' existing Social Security taxes. Without this sort of real reform, younger workers face the prospect of paying ever-higher payroll taxes for dwindling benefits. Personal accounts are a way to avoid the looming Social Security crisis and let workers create an asset that can be passed on to their children and grandchildren.

The Coming Crisis

The President's commitment to reform Social Security by allowing younger workers to invest a portion of their taxes in Personal Retirement Accounts is a welcome step. That is the good news. Although urged by many Republicans and Democrats either to quietly drop the issue or limit his efforts to empty rhetoric, the President made it clear that he is serious about dealing with Social Security's coming fiscal crisis now.

This is very good news to millions of younger Americans, who would otherwise face higher and higher taxes during their working lives and smaller and smaller benefit checks during retirement. In less than 15 years, Social Security's retirement program will begin to spend more in benefits annually than it receives in taxes. It has a drawer full of paper promises labeled the "trust fund", but these are nothing more than a pledge to use ever-larger amounts of general revenue taxes to pay benefits.

Essentially, anyone who is today age 50 or under can expect to pay additional taxes totaling over $5 trillion so that Uncle Sam can honor the trust fund promises. Sadly, in 2042, the drawer of paper promises will be empty, and from that point on, promised benefits will be cut - first by 27 percent and then by ever greater amounts as Social Security's deficits grow larger. Without real reform, anyone under the age of 28 today can expect to pay 100 percent of their Social Security taxes and 100 percent of their share of the extra taxes to pay the trust fund promises only to receive about 73 percent of the benefits that Social Security has promised them.

The Hard Part

If the President's commitment to reform Social Security is the good news, the bad news is that he has not said how he plans to achieve this goal. As last year's experience with Medicare soundly proved, declaring a goal is the easy part. Translating that goal into an acceptable law that actually meets the objectives is much harder and requires real presidential leadership.

Last year, the president limited his participation to a set of general principles around which Congress was supposed to craft a Medicare reform bill. Within a short time, meaningful reform had been replaced by a new expanded entitlement that increased the cost that younger workers will have to finance. Social Security reform could face the same sad fate unless President Bush is willing to state directly what he will and will not accept. Then he will have to put the full prestige of his office behind those goals - and even more importantly, against congressional efforts to duck the hard decisions that will be needed.

Social Security reform will not be easy. Crafting a practical personal retirement accounts plan will be as difficult as assembling a spring wound clock, filled with gears of different sizes that all have to fit together perfectly. It will be easy for Congress to get sidetracked on fine-sounding but essentially meaningless provisions such as the treatment of Social Security's trust fund promises or the budget treatment of personal accounts.

President Bush will have to know in detail how he wants to reform Social Security. Then he and his staff will have to sell those changes to both Congress and the American people. This will be hard, slow work, but it is the kind of presidential leadership that will be needed. President Roosevelt exercised that type of leadership to pass Social Security in the first place, and it is what this President demonstrated so effectively to change US tax policy.

The Road Ahead

The first thing President Bush needs to make clear is that fixing Social Security is not about mythical lock boxes or trust fund accounting. Among the other factors that he must consider are:

1. The benefits of current retirees and those close to retirement must not be reduced.
2. The rate of return on a worker's Social Security taxes must be improved.
3. Americans must be able to use Social Security to build a nest egg for the future that can be passed on to future generations.
4. Personal retirement accounts must guarantee an adequate minimum income.
5. Workers should be allowed to fund their Social Security personal retirement accounts by allocating some of their existing payroll tax dollars to them.
6. For currently employed workers, participation in the new accounts must be voluntary.

No other recent president has given personal retirement accounts more than lip service and the President should be commended for the goal he has set. However, younger workers cannot retire on fine sounding phrases. Additional praise for this initiative should be reserved until it is clear through unambiguous additional steps that President Bush recognizes how much additional effort will be needed, and has begun to take them.

David C. John is Research Fellow in Social Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.