Equally important, workers still have no ownership of their benefits. This means that workers are left totally dependent on the goodwill of 535 politicians to determine what they will receive in retirement. Low‐ and middle‐income workers are still unable to accumulate a nest egg of real, inheritable wealth. And younger workers still receive a dismal rate of return on their money.
If Social Security’s problems haven’t changed since the Bush years, neither have the possible ways to fix those problems: Raise taxes (the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits by as much as 25 percent or allow younger workers to invest privately.
We could always raise taxes or cut benefits enough to bring the system into balance. Some have suggested removing the cap on income subject to the payroll tax. But while that would be the largest tax increase in U.S. history, at least $1.3 trillion over the first 10 years, it would increase Social Security’s cash‐flow solvency by just seven years. Raising taxes or cutting benefits will make an already bad deal worse for younger workers, many of whom will end up paying more in taxes than they receive in benefits. And raising taxes will do nothing to fix the fundamental problems of ownership, inheritability and choice.
The only workable solution still is to allow younger workers to invest privately a portion of their Social Security taxes through personal accounts so as to take advantage of the higher returns earned through investment in real assets, and offset the reduction in government benefits that will be required to bring the system into solvency.
Critics undoubtedly will point to the collapse of the stock market in 2008 and suggest that private investing is just too risky. However, studies show that long‐term investment remains remarkably safe. If workers retiring today had been allowed to start privately investing their taxes 40 years ago, they obviously would have less money than those who retired a couple of years ago, but they still would have more than Social Security promises. Remember, someone retiring today would have begun contributing to his or her retirement account 40 years ago, when the Dow was at less than 1000.
Not every worker would want to take on the risks and volatility of private investment. Some might prefer the political risks of today’s system despite its looming insolvency. But that’s why personal accounts have always been — and should continue to be — an option. Those who want to remain in the current system should do so, but those who wish to invest a portion of their money privately should be given that choice.
Not surprisingly, a great many would do so. A survey taken last year by Sun Life Financial at the nadir of the market’s decline found that 48 percent of American workers would opt out of Social Security even if doing so meant the loss of all future Social Security benefits (something far more drastic than is being proposed). Among workers younger than 30, the number wanting out of Social Security was a startling 59 percent.
Today’s conservative leaders might want, understandably, to stay far away from any initiative associated with Mr. Bush. Yet no one who aspires to political leadership can ignore the need to reform entitlement programs, including Social Security. Those who are willing to do so in a way that gives workers more choice and more control over their money may find themselves doing something that is surprisingly popular as well as good public policy.