Rather than
of return. Indeed, on average, younger work-
not come close to restoring Social Security to
ers can expect a return on their taxes of less
long-term solvency. Even more important,
increasing taxes,
than 2 percent. For the upper-income work-
under every one of these options, at the end of
we should allow
ers likely to be affected by raising or eliminat-
the 75-year actuarial period the trend line is
younger workers
ing the cap, the expected rate of return from
down, indicating that Social Security's solven-
Social Security is likely to be less than one-
cy will continue to deteriorate in the future.
to privately invest
half of 1 percent.29
Quite simply, we can't tax our way out of
a portion of their
Social Security's problems.
Raising taxes will do nothing to resolve
these problems. It will not give workers own-
Social Security
ership and control over their money. It will
taxes through
The Real Issues of Social
not allow low- and middle-income workers to
personal
Security Reform
accumulate a nest egg of real, inheritable
wealth. It will not improve Social Security's
accounts.
rate of return for younger workers. In fact, for
It is also important to realize that Social
those upper-income workers subject to the
Security's problems are not just a matter of
tax increase, it will make their already dismal
financing. While restoring Social Security to
rate of return even worse. In many cases, it
permanent sustainable solvency is an impor-
would make that return negative.
tant goal of any reform, it should not be the
only goal. Rather, Social Security reform
should be seen as an opportunity to fix many
A Better Alternative
of the underlying problems with the system.
The first of these is ownership. Under the
current Social Security system, Americans have
Rather than increasing taxes, we should
no ownership rights to their benefits. In 1960
allow younger workers to privately invest a
the Supreme Court of the United States ruled in
portion of their Social Security taxes through
Flemming v. Nestor that Social Security was just
personal accounts.
another tax-and-spend program, no more spe-
And, although personal accounts would
cial than corporate welfare or farm subsidies.
not by themselves solve all of Social Security's
Social Security "contributions" are a tax, the
financial problems, combined with other
Court ruled, "benefits" just another spending
measures they could do far more to restore
program, and taxpayers have no legally enforce-
the program to solvency than could increas-
able claim to the payment of such benefits.28
ing the payroll tax cap.
For example, compare the most radical
This lack of ownership leads directly to
proposal, complete elimination of the cap and
another problem with the current Social
no additional benefits, with legislation intro-
Security system: a lack of inheritability.
duced by Reps. Sam Johnson (R-TX) and Jeff
Although the current Social Security system
Flake (R-AZ), which was based on the Cato
does provide survivors' benefits for children
Institute's "6.2 Percent Solution" (Figure 7).30
under age 18, millions of workers who die
prematurely are unable to pass along a legacy
The Johnson-Flake bill (HR 530) would allow
to their loved ones. Social Security as it is
workers under age 55 to save their half of the
structured today is, essentially, a 100 percent
Social Security payroll tax (6.2 percent of
death tax. This is of particular importance to
wages) through individual accounts and
African Americans, the poor, and others with
would change the Social Security benefit for-
shorter life expectancies.
mula from a wage index to a price index.
And, finally, it is important to realize that
The Johnson-Flake bill restores Social
Security to permanent sustainable solvency.31
Social Security taxes are already so high com-
pared with benefits that the program has
Eliminating the cap does not. In fact, at the end
become an increasingly bad deal for younger
of the 75-year actuarial period, Social Security
workers, providing a low, below-market rate
without a cap on taxable earnings would still
9