And now for the hard part . . .

December 11, 1998

Perhaps surprisingly, the two-day White House conference on Social Security that concluded Wednesday actually produced a consensus among policymakers that investment in private markets is the only way to reform Social Security. Thursday's Washington Post provides some interesting details. But several vital questions remain to be resolved. Following is a brief analysis of each by Michael Tanner, the director of Cato's Project on Social Security Privatization:

Individual vs. Government Investing
"Allowing the government to invest directly in private capital markets would pose a serious threat to our economic system by transforming the federal government into the largest shareholder in every major American corporation. Potentially, you could have a government bureaucrat sitting on every corporate board. Investment choices would almost certainly become politicized. A system of individual accounts not only avoids such problems, it gives workers ownership and control over their retirement funds, allows them to accumulate wealth and pass that wealth on to their heirs, and gives them a greater stake in the American economic system."

Carve Out vs. Add On
"Adding a private savings component on top of the current Social Security tax would have the same impact as a tax increase, especially on low-wage workers. Three of four Americans already pay more in payroll taxes than in federal income tax. American workers cannot afford to have any more money taken out of their pockets. Instead, payments to individual accounts should be 'carved out' of existing payroll taxes."

More vs. Less
"A little private investment is good; more private investment is better. Given the advantages of allowing workers to invest their payroll taxes in real assets, there is no excuse for stopping at 2 or 3 percent of payroll taxes. Workers should be allowed to contribute the maximum feasible amount to their retirement accounts."

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