Of course, one might ask, if big accounts are
Finally, the truly risk averse can avoid pri-
better than small, then why not allow workers
vate investment altogether. They can choose to
to privately invest the full 12.4 percent payroll
remain entirely within the current Social
tax, or at least the roughly 10 percentage points
Security system.
used for OASI benefits?
People concerned with short-term annual
Although there is no doubt that even bigger
cash flows acknowledge that large accounts
accounts would provide higher benefits than
would save money in the long run, but they are
those envisioned under our plan, accounts of 10
equally concerned with maintaining the pro-
percent or more may actually result in too much
gram's financial balance on an annual basis.
forced savings for many workers.
This concern is due in part to the size of pro-
Most high- and middle-income individuals
jected annual budget deficits and in part to
do not rely solely on Social Security for their
skepticism about the ability of the federal gov-
retirement income. In fact, the wealthiest fifth
ernment to use money saved in the future to
of retirees receives only 20 percent of its
repay debt incurred during the transition, rather
income from Social Security.38 Those workers
than for tax cuts or new spending programs. In
all honesty, Congress's recent spending habits
have other (nonSocial Security) forms of sav-
give some cause for concern.
ing and investment, including IRAs, 401(k)
However, focusing only on short-term cash
plans, and even individual equity ownership
flows may be penny-wise and pound-foolish. It
and other investments. Indeed, we can assume
is much like paying only the minimum pay-
that many of those workers have already
ment on a credit card, neglecting the opportuni-
achieved the level of retirement savings that
ty to pay off the long-term debt altogether.
they desire. Forcing them to save more through
Large account plans do incur greater short-term
Social Security accounts may simply result in
Focusing only
costs, but they also result in greater long-term
their saving less through their other invest-
savings.
ments. Moreover, in most cases, the nonSocial
on short-term
More important, Social Security reform is
Security investments take place in a less regu-
cash flows may
about more than finances. Indeed, if system
lated and less constrained environment than
be penny-wise
finances were the only issue, we could simply
that envisioned for individual accounts under
raise taxes or cut benefits. True Social Security
Social Security. The end result of excessively
and pound-
reform must also provide increased rates of
large accounts, therefore, might actually be a
foolish. If
return and higher benefits; correct the inequities
perverse decrease in the freedom to invest.
system finances
of the current system so as to treat working-
Finally, some people have suggested pro-
women, African Americans, and others more
gressive accounts, with low-income workers
were the only
fairly; and give low-income workers a greater
able to invest a higher proportion of their pay-
issue, we could
roll taxes than those with higher incomes.39
opportunity to own and accumulate real wealth.
simply raise
By those measures, large accounts do a far bet-
Such an approach has a great deal of appeal. It
ter job of achieving true reform.
would maximize the benefits of individual
taxes or cut
For example, increasing attention is being
accounts to low-income workers while holding
benefits.
paid to the benefits of individual accounts as a
down overall transition costs and avoiding the
way to give low-income workers an opportuni-
problems of oversaving by higher-income
ty to build wealth. Although any increase in
workers.
wealth should be encouraged, we should also
However, there are serious practical and
be honest enough to admit that for low-wage
implementation problems with such an
workers 2 percent of their wages is not enough
approach. In particular, proposals for progressive
to allow for the accumulation of a real nest egg.
accounts would appear to shift compliance and
Given that their Social Security accounts may
administrative costs to employers. The addition-
often be the only form of savings that low-
al record keeping could become a significant
income workers have, the more we enable them
burden, particularly for small businesses.
to save, the better.
Consider, for example, a worker who holds
Finally, small accounts do little to advance
two jobs. During the day, he works at a well-
the fundamental goals of reducing reliance on
paid manufacturing job. At night, he supple-
government and giving individuals greater
ments his income as a minimum wage bar-
responsibility for and control over their lives.
tender. How would his two employers reconcile
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