Kuttner's Attacks on Accounts Fall Flat

December 19, 2002

Economist and American Prospect publisher Robert Kuttner takes some hard shots at personal retirement accounts in his latest syndicated column. In most cases, however, Kuttner is swinging at the air: while Kuttner's charges sounds concincing, there is almost no actual Social Security reform legislation to which his scare tactics apply.

First, Kuttner says, "The need to fix Social Security's finances is real. But diverting payroll taxes to pay for private accounts is the opposite of a solution because it would worsen that shortfall by several trillion dollars." In a letter to the editor of the Los Angeles Times, however, Cato Social Security analyst Andrew Biggs pointed out that "a dozen personal account reform plans are certified by the Social Security Administration to keep Social Security solvent forever. There is no Social Security legislation without accounts certified by the SSA to keep Social Security solvent indefinitely." Like Rep. Robert Matsui, who made the same claim in his Roll Call op-ed, if Kuttner believes Social Security reform is easier without accounts he should explain why account opponents are so reluctant to put their plans on the table.

Second, Kuttner says, "privatization would leave less money for Social Security checks, unless it increased the national debt by several trillion dollars." In fact, Social Security reform costs less over the long term, not more. The SSA's analysis of the personal account plans from the President's Commission found that if we borrowed to fill Social Security's funding gap, by 2075 we would face a debt of $3.2 trillion (in present value). The most prominent commission plan would leave Social Security with assets worth over $1.6 trillion. Even if debt were issued during the early transition period, it could be paid off – and more – through the gains accumulating later.

Kuttner also claims that, "Some versions [of reform] would add a 'means test,' which would require pensioners to demonstrate poverty before they can draw Social Security checks. As with welfare, retirees would have to deplete assets to make themselves poor enough to qualify (the genius of the current system is that Social Security is earned, and rich, middle-class and poor alike are all entitled to checks based on their lifetime income and taxes paid in.)" Biggs replies, "If Kuttner can point out any personal account legislation containing a means test he should do so. There are none."

Kuttner's claim that personal accounts cannot mimic Social Security's lifelong benefits is also false. Annuities – which have been around since the Roman Empire – pay a guaranteed monthly benefit in exchange for a lump sum pay. Workers desiring such protection can purchase annuities, while those wishing to leave a bequest could make gradual withdrawals from their accounts. (It would not be either/or, of course; workers could annuitize part of their accounts, leaving the rest as a lump sum.)

Social Security is an important issue. Readers deserve the facts before they decide how the nation should proceed.

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