The article notes: "Privatization can lift the rate of return workers obtain on their retirement contributions. It can raise the national savings rate and enhance economic growth. It can lower payroll taxes and create a bigger Social Security pie." However, the editorial contends that since personal accounts give workers control over their retirement savings, they would also leave workers bearing "the risk involved in investing their retirement incomes." This is reason enough to "leave Social Security alone."
Cato Social Security analyst Andrew Biggs responds to the editorial's analysis in the following letter, scheduled to appear in The Hill next week.
To the Editor:
The editors ask that we "Leave Social Security alone," yet that is simply not an option available. The program will begin running cash deficits in 15 years, and for younger workers "leaving Social Security alone" means benefit cuts exceeding 25 percent or tax increases of up to 50 percent.
Whether or not we institute personal accounts, Social Security's long-term finances must be brought to balance. With personal accounts, which can earn a higher rate of return over the long run, that balancing process can be significantly less painful than if it relied upon tax increases and benefit reductions alone.
The editors claim that, "In the real world … privatization can lead to a significant loss of retirement income when (not if) markets tumble." In fact, a worker with a personal account retiring even in todays down market would still receive higher benefits than by staying in current program.
Moreover, Social Security does not guarantee the same benefits "to all workers with the same work and earnings history whenever they retire."
Past retirees were treated far more generously than future retirees will be, and single workers and dual-earner couples receive significantly lower total returns than single-earner couples with identical earnings.
Finally, the editors imply that opposition to the Clinton administration's plan for the government to invest the trust fund in the stock market was based on it being "too timid." In fact, numerous outside commentators, including Fed Chairman Alan Greenspan, thought the plan risked government control over capital markets. Even Al Gore was eventually convinced, telling the New York Times, "The magnitude of the government's stock ownership would be such that it would at least raise the question of whether or not we had begun to change the fundamental nature of our economy."
The temptation to "leave alone" a program which cannot be left alone delays the implementation of real solutions to Social Security's problems.
