<<  <  >  >>

his total income to determine the amount that

Notes

he is able to contribute to his individual

1. 2003 Annual Report of the Board of Trustees of the

account?

Federal Old-Age and Survivors Insurance and Disability

One last point: we believe that 6.2 percent

Insurance Trust Funds, ftp://ftp.ssa.gov /pub/OACT/

accounts are a very easy concept to explain to the

TR/TR03/tr03.pdf. Cited hereafter as 2003 Trustees'

average worker. The worker can privately invest

Report.

his half of the 12.4 percent payroll tax, while the

2. Ibid.

employer's half is used to finance the transition

(and fund survivors' and disability benefits). Of

3. Executive Office of the President of the United

course we recognize that, from an economic

States, Budget of the United States Government, Fiscal

point of view, there is no difference between the

Year 2000, Analytic Perspectives, p. 337. Emphasis

employer and the employee share of the tax. The

added.

employee ultimately bears the full cost, but most

4. 2003 Trustees' Report.

workers make the distinction in their own minds.

A 6.2 percent account proposal, then, becomes

5. William Jefferson Clinton, Speech to the Great

clear, concise, and easy to understand in an age

Social Security Debate, Albuquerque, NM, July 27,

of eight-second sound bites.

1998.

6. Henry Aaron, Testimony before the Senate

Committee on Finance, 106th Cong., 1st sess.,

Conclusion

January 19, 1999.

More and more Americans agree on the

7. Author's calculations, derived from 2003 Trustees'

importance of allowing younger workers an

Report.

opportunity to privately invest their Social

Security taxes, but advocates of individual

8. Ibid., p. 16.

accounts are divided over how large those

9. See Michael Tanner, "The Better Deal:

accounts should be. Some proposals that call

Estimating Rates of Return under a System of

for large accounts have very large transition

Individual Accounts," Cato Institute Social Security

costs, which makes their political viability sus-

Paper no. 31, October 28, 2003.

pect. Other proposals are relatively less expen-

sive but give workers control over and owner-

10. Martin Feldstein, "Privatizing Social Security:

ship of only a small portion of their retirement

The $10 Trillion Opportunity," Cato Institute

Social Security Paper no. 7, January 31, 1997.

funds. We believe that it is possible both to

have large accounts and to be fiscally responsi-

11. See Michael Tanner, "Disparate Impact: Social

ble. This proposal is designed to meet that goal.

Security and African Americans," Cato Institute

The proposed Social Security reform would

Briefing Paper no. 61, February 5, 2001.

restore Social Security to long-term and sus-

tainable solvency and would do so at a cost less

12. Flemming v. Nestor, 363 U.S. 603 (1960). For a

fuller discussion of this issue, see Charles Rounds,

than that of simply propping up the existing

"Property Rights: The Hidden Issue of Social

program. It would also do far more than that.

Security Reform," Cato Institute Social Security

Younger workers who chose the individual

Paper no. 19, April 19, 2003.

account option could receive retirement

resources substantially higher than under tradi-

13. Flemming v. Nestor at 616.

tional Social Security. At the same time,

women and minorities would be treated more

14. Helvering v. Davis, 301 U.S. 619 (1937), quoted

in Flemming v. Nestor at 616.

fairly, and low-income workers would be able

to accumulate real wealth.

15. In practice, rather than reduce each check sent

Most important of all, this is a proposal that

to beneficiaries, the Social Security Administration

would give workers ownership of and control

would stop sending out checks altogether until it

over their retirement income. It is a plan that

accumulated sufficient funds to pay "full" benefits.

puts people, not government, first. It is a plan

When those funds were exhausted, checks would

again be withheld until sufficient funds accumulat-

that is fiscally responsible and protects future

ed, leading to checks starting and stopping several

generations of workers and taxpayers.

times over the course of a year. The net effect would

13