Tanner expects to set out a series of principles that he believes should guide any proposal for Social Security reform. These include:
Solvency Is Not Enough: Workers deserve the best possible deal for
their dollar. With Social Security facing a financial crisis¾it will begin
running a deficit in just 15 years¾much attention has been focused on ways
to keep the program solvent. Theoretically, that could be accomplished by
raising taxes or cutting benefits. But Social Security faces a second crisis
as well: Young workers will receive a negative rate of return from the program.
They will get less back in benefits than they pay in taxes. That low return,
and other inequities, is particularly disadvantageous to women, the poor,
and minorities. Any Social Security reform must reverse this trend, raising
the rate of return and providing higher retirement benefits. Finally, any
Social Security reform must give workers ownership and control over their
retirement funds.
Individuals, Not Government, Should Invest: The only way to increase
Social Security's rate of return is to invest Social Security taxes in real
capital assets. This should be done through the creation of individually owned
accounts, not by allowing government to directly invest payroll taxes. Individual
accounts would give workers ownership of and control over their retirement
funds, allowing them to accumulate wealth and pass that wealth onto their
heirs; it would also give them a greater stake in the American economic system.
Government investment would allow the federal government to become the largest
shareholder in every American company, posing the potential threat to corporate
governance and the specter of social investing.
Maximize Consumer Choice: Workers should be given as wide a range of
investment opportunities as possible, consistent with regulatory safeguards
against fraud or speculation. While investing in "Singapore derivatives" is
clearly not envisioned, there is no reason to limit workers to only two or
three index funds. As much as possible, the existing retirement savings infrastructure
should be used, meaning workers would have a large number of safe and secure
options. Moreover, a safety net would guarantee that no senior would end up
in poverty as a result of bad investments.
Don't Touch Grandma's Check: Benefits to currently retired and nearly
retired should not be reduced. Indeed, by explicitly recognizing benefits
owed to current retirees, privatization would guarantee those benefits in
a way that the current political system does not. Making the transition to
a new system while guaranteeing current benefits means that the government
will have to issue debt, cut current spending, or sell assets, but those "transition
costs" will be substantially less than the costs of maintaining the current
system.
More Privatization Is Better Than Less: You don't cut out half a cancer.
Given the advantages of a privatized Social Security system, there is no excuse
for stopping at the privatization of only 2-3 percent of payroll taxes. Once
Congress has conceded that private capital investment can provide better and
more secure retirement benefits, it should press on allow workers to control
the maximum feasible amount of their retirement income.
