Commentary

Personal Accounts are the Only Real ‘Guarantee’

No Sooner has the ineffective and unlamented “lockbox” gone to its grave than the next Social Security gimmick enters the scene.

Congressional Republicans are promoting legislation to issue certificates to each new retiree to “guarantee” their Social Security benefits would never be cut. Designed to make necessary reforms more palatable, these guarantees are little more than a P.R. stunt and, worse, one that is likely to backfire. Even today, as criticism of guarantee legislation mounts, Republican leaders hope to sneak it through as part of the larger budget bill.

Like the lockbox, the guarantees are unenforceable, do nothing to address Social Security’s underlying problems and could backfire on efforts for reform based on personal accounts. Congressional Republicans would be better off making their own case for comprehensive reform, for that case is strong.

Theoretically, the guarantee plans offered by several congressmen and senators give retirees “property rights” to their benefits, guaranteeing their monthly benefits, plus annual cost-of-living increases, for life. Guarantees are appealing, the perfect shield for election-minded Republicans against inevitable Democratic charges that Social Security reform will cut benefits to the elderly. What better campaign prop than a mock Social Security guarantee certificate to prove them wrong?

Making guarantee plans doubly attractive is that Social Security today offers no such assurances. The Supreme Court has ruled that Congress can raise taxes or cut benefits at any time, by any amount, for any reason, and individuals have no legal recourse. Given Social Security’s long-term insolvency, it is a mathematical certainty that Congress will eventually avail itself of this right, as it has in the past.

But while it’s easy for Congress to pass out certificates with “guarantee” printed on them, retirees should think twice before trying to enforce that promise. As the Congressional Research Service recently pointed out: “One Congress may not bind a future Congress, so that Congress is always free to amend or repeal prior legislation.” In other words, these new bills offer the same non-guarantee as the current system, just printed on fancier paper.

Furthermore, Social Security’s long-term financing is simply unsustainable, requiring 50 percent higher payroll tax rates if today’s younger workers are to receive full retirement benefits. If Congress does honor these “guarantees,” are we not — in the absence of specific reform proposals — also guaranteeing that future workers will be subject to those higher taxes? Somebody has to pay those guarantees, and younger workers will soon figure out it is them.

Worse still, guarantee bills hurt the very cause its sponsors support. The public accepts that the Social Security status quo cannot continue. To argue that secure benefits come not from meaningful reform but a mere stroke of a pen undermines the case for change, including that for personal accounts. Given that no leading Democrat endorses any comprehensive reform proposals, the proper comparison should be between those who have legitimate plans and those who don’t, not between two sides competing to do less while promising more.

Despite the Enron scandal and stock market slumps, two-thirds of Americans still support personal accounts, according to recent Gallup polls. That is because account assets are protected not by a congressional promise but by constitutional rights securing individuals in their property. While personal accounts help address Social Security’s financing problems, ownership and control are keys to their public appeal. Guarantee certificates pretend to offer protections that only personal accounts can truly deliver. When it comes to security, the public should accept no substitutes.

Even as utterly cynical politics, guarantees fall short. President Bush’s war leadership and economic recovery mean Republican electoral prospects are looking up. If Democrats make Social Security the centerpiece of the election, Republicans — who will likely retain control of the House regardless — can claim a “mandate” to finally implement reform. If Republicans hide behind ersatz guarantees, no such mandate can exist. Guarantee bills make perfect sense if a congressman is singularly concerned with his own re-election and singularly unconcerned with reforming the pension plan that millions of Americans depend upon.

The guarantee bills’ sponsors are not that cynical, and honestly believe the certificates open seniors’ ears to discussion of reform. But as the lockbox proved, most members of Congress are far more interested in dodging discussions of Social Security reform than finding ways to start them. Guarantee bills provide the perfect dodge. But without real reform these guarantees are worse than meaningless.

Perhaps in an election year we can expect little better. But surely the American public, workers and retirees alike, deserve something better. That something is a real debate on how to maintain and strengthen Social Security.

Andrew Biggs is a former Social Security analyst at the Cato Institute.