The Social Security reform plan proposed by Reps. Bill Archer (R-Tex.) and Clay Shaw (R-Fla.), chairmen, respectively, of the House Ways and Means Committee and its Subcommittee on Social Security, is a compromise between a Clinton administration plan to let the government invest workers’ payroll taxes in the market and congressional proposals to let individuals invest their payroll taxes in personal market-based accounts. Government investment has been criticized for the possibility of political influence on investment decisions, while personal accounts face attack for making individuals shoulder the burden of market risk. The Archer-Shaw plan is an attempt to satisfy critics of both approaches.
The Archer-Shaw plan would let individuals make investment decisions, thereby reducing the likelihood of political influence, but the government would be required to protect workers against any losses. The plan’s proposal to privatize profit and socialize risk resembles the incentive structure that led to the 1980s savings and loan crisis, which cost taxpayers hundreds of billions of dollars. That incentive structure creates what economists call “moral hazard” and could again lead to large taxpayer liabilities if allowed to take root in the Social Security system.