One of the best arguments for personal retirement accounts is that they would function as “lockboxes.” Right now, the Social Security surplus–what’s left over after the taxes the program takes in are spent on benefits for today’s retirees–are spent on the rest of the federal government’s operations rather than being saved for tomorrow’s retirees. If the money were set aside as future retirees’ property, however, this diversion of funds would be more difficult. With the Social Security surplus in individual accounts, it would no longer be masking the deficit run by the rest of the federal government. The pressure to restrain federal spending, and thus make it possible to save more for the future, might correspondingly increase.
This argument for reform–that if the money is in your account, politicians cannot spend it on anything else–is also the one that polls the best. So Republicans are now putting it front and center. Eleven senators, led by Jim DeMint of South Carolina, have introduced the “Stop the Raid on Social Security Act.” In the House, Paul Ryan of Wisconsin and other members of the House subcommittee on Social Security have introduced similar legislation. In both cases, the idea is to place the Social Security surplus in personal accounts (for workers who want them).
Since only the surplus portion of payroll taxes would go into the accounts, this proposal represents something of a retreat. Many Republicans had wanted larger accounts. Moreover, the proposal addresses Social Security’s insolvency only indirectly, by creating a constituency for reform and by placing some of the program’s future liabilities on the budget.
The leading criticism of the proposal–other than the reflexive opposition of those who react to personal accounts as vampires to a cross–is that the Social Security surplus will run out in a little over a decade, at which point there would be no more contributions to the personal accounts. The criticism is a little odd coming from people who detest personal accounts: Wouldn’t they want this experiment in freedom to come with a time limit? The bill is not a permanent solution to Social Security’s problems, and doesn’t pretend to be. But the hope is that a little reform now will make future reform easier. Even if there is no future reform and no future contributions, account balances would continue to accumulate.
“The bill is not a permanent solution to Social Security’s problems, and doesn’t pretend to be.”
The proposal is uniting the various Republican factions. Republicans who want to avoid even the slightest hint of a cut in benefits like it; so do Republicans who want to avoid massive increases in explicit or implicit federal debt. Nobody is under any illusions that uniting Republicans is enough. At this stage of the debate, it is hard to find many optimistic reformers. The Democrats have been very successful at maintaining a united front in opposition to action on Social Security. While we do not believe that their opposition will gain them many seats in Congress in 2006, it does not appear likely to cost them any either. The new Republican proposal will probably not change any Democrats’ minds. But it is a worthwhile proposal; it may serve to stir up a debate that had congealed months ago; and it is hard to see how it could hurt Republicans to try, try again.