Bush Renews Support for Individual Accounts

August 29, 2001

As the shrinking budget surplus heats up political rhetoric around Social Security, President Bush has restated his support for reforming Social Security, including allowing workers to privately invest a portion of their Social Security taxes.

Speaking in Harry Truman's hometown of Independence, Missouri, Bush warned that Social Security was facing a looming financial crisis and requires bold action for reform. Bush also suggested that his support for partial privatization of Social Security was a political plus, one reason why he was elected. "One of the reasons that I am standing here is because I had the courage to tell that message. We must give younger workers the option to manage their money in the private sector if that's what they choose to do."

Meanwhile, prominent Democrats continued to deny that Social Security needs reform. Senator Paul Wellstone (D-Minn.) used the weekly Democratic radio address to declare, "Social Security is not in crisis. It is not broken. It is not facing bankruptcy. But Social Security is threatened by proposals to replace the system with individual investment accounts and slash guaranteed benefits."

Wellstone is wrong on three counts. First, Social Security is indeed facing a financial crisis, beginning as early as 2016. (See, Andrew Biggs, "Social Security: Is It 'A Crisis That Doesn't Exist'," Cato Institute Social Security Paper no. 21, October 5, 2001.). Second, Social Security benefits are not guaranteed. Under the Supreme Court decision in Nestor v. Flemming, there is no contractual or property right to social security benefits. Those benefits can be changed or reduced by Congress at any time. (See, Charles Rounds, "Property Rights: The Hidden Issue of Social Security Reform," Cato Institute Social Security Paper no. 19, April 19, 2000.) And, individual accounts do not mean reductions in Social Security benefits. True, the mix of retirement benefits would change, with some portion now supplied by individual accounts rather than through the government. But the average worker will have more--not less--money to retire on.

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