To see this in action, just watch opponents of President Bush’s proposal to allow younger workers to invest privately a portion of their Social Security taxes through individual accounts. They would much prefer to debate about whether Social Security is facing a “crisis” or only a “problem.” They will talk about cash‐flows, transition costs, and memories of the Great Depression. But the one thing they won’t talk about is perhaps the most important issue in the whole Social Security debate: ownership.
Under the current system, once a worker pays his or her Social Security taxes into the system, the worker no longer owns that money. Most workers assume that because they pay Social Security taxes into the system their whole working lives, they have some sort of legal guarantee to the system’s benefits.
Unfortunately, exactly the opposite is true. In two landmark cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that workers have no right to receive Social Security benefits. Congress and the president may change, reduce, or even eliminate benefits at any time. Retirees must ultimately depend on the good will of 535 politicians to determine how much money they will receive in retirement. Where is the dignity in such a system?
As a matter of fact, Congress has already arbitrarily reduced Social Security benefits. For example, in 1983, Congress raised the retirement age. Given Social Security’s looming financial crisis, additional benefit cuts and/or tax increases are certain. Further, because workers’ future benefits are not guaranteed, politicians tend to make promises today that they may not be able to keep tomorrow. Therefore, the entirely political nature of Social Security puts a worker’s Social Security retirement benefits at considerable risk.
The second major problem arising from the fact that workers do not own the money they pay in Social Security taxes is that their heirs cannot inherit their accumulated retirement savings. Upon the death of the worker, no matter how much or how little the worker has paid in taxes or collected in benefits, the money he or she paid into Social Security disappears; none is passed on to his or her children or grandchildren.
Both of these problems are solved by an individual account Social Security system. A Social Security system based on individual accounts would provide workers with the benefits and the safeguards of true ownership. Individual accounts would give all workers a true legal right to their benefits. Social Security would no longer be a political football, and workers and retirees would not have to worry that someone in Washington might cut their benefits.
Furthermore, upon the worker’s death, the money in the worker’s retirement account could be passed on to his or her spouse, children, charity, or to whomever he or she wishes. With individual accounts, workers own their retirement savings!
There is no doubt that Social Security will have to be reformed. The program will begin running a deficit, spending more money on benefits than it takes in through taxes, in less than 15 years. Overall, it faces unfunded obligations of nearly $12 trillion.
We can use Social Security reform to create a new, better retirement system that gives workers ownership and control over their retirement funds. We can restore Social Security to solvency, while also letting low and middle‐income workers build a nest egg of real, inheritable wealth — many for the first time in their lives. That would be a real retirement guarantee, one that couldn’t be taken away at the whim of our elected representatives.