It's a whole new debate: not whether, but how

December 9, 1998

The bottom line of yesterday's White House Conference on Social Security? Michael Tanner, director of Cato's Project on Social Security Privatization, says that "the participants were asking the right questions, which is the essential starting point for a productive debate."

"The parameters of the debate on Social Security reform have now been set, and a consensus has been reached on the critical starting point. Virtually all of the discussion at yesterday's White House conference centered on individual retirement accounts and related issues. All serious economists now concede that saving Social Security is about getting a higher rate of return in a market environment. The devil, of course, is in the details. Precisely how do we go about creating an investment-based system? Who will do the investing, and where will the money come from-current payroll taxes, new taxes or voluntary contributions?

"A few stragglers on the far-left remain in denial, unable or unwilling to consider anything except propping up the current system by raising taxes or cutting benefits by doing things like raising the retirement age. But it was clear at yesterday's conference that they are an increasingly desperate and out-of-touch minority.

"There is now only one real debate with only one logical conclusion. It is a debate over individual accounts. Who do you trust with your money, the government or yourself?"

"It's your money, your choice, your future."

Yesterday's White House conference; yesterday's Washington Post story

President Clinton's remarks at the White House conference on Social Security yesterday were noncommittal, but the front-page story in the Washington Post told the fuller story: privately owned retirement accounts will clearly be part of whatever plan we zero in on next year. Here are some observations from Michael Tanner, director of the Cato Project on Social Security Privatization:

"The Washington Post notes that the Clinton administration is looking carefully at five plans, all of which 'contain the once-heretical idea . . . of harnessing the power of equity investments' in reforming Social Security. Of course, the idea should never have been considered 'heretical' in the first place, since only market-based investments build genuine wealth. Our current pay-as-you-go Social Security system does nothing but take a dollar from working taxpayer A and give it to retiree B. Even one fan of the current system admitted during one of this morning's panels that no one would ever try to create such a system today. The only thing it's got going for it is momentum, and that's no advantage if the momentum is about to take you off the edge of a cliff.

"Mr. Clinton is right to be looking at plans that embrace market investment, but he shouldn't feel bound to endorse any particular one of them. Rather, he should embrace good features wherever he finds them. For example, 'carve-outs' are better than 'add-ons' when it comes to individual investment accounts. The working poor and much of the middle class simply can't afford add-ons once 12.4 percent of their income is taken away. They must-at a minimum-be allowed to carve-out at least part of that deduction and put it into a personally owned account rather than into Social Security's black hole. The larger the carve-out, the larger those people's retirement income will be. And frankly, the logic is inexorable: larger carve-outs are better, and full privatization is best, because it'll maximize everyone's retirement income."

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