It's official. We're now allowed to discuss Social Security reform. A few years ago, Social Security was routinely understood as an uncontrollable program fated to eat up more and more of our money. Now, however, federal budget surpluses, the growth of boomer retirees and the dearth of new workers to pay for their forebears retirement have provided an unprecedented opportunity to fix Social Security's problems.
Washington policymakers are now routinely deluged with proposals for Social Security reform. That's why the report of the 24-member bipartisan commission on Social Security reform, the National Coalition on Retirement Policy, was so eagerly awaited.
And that's why it was such a tremendous disappointment. The commission's recommendations would continue the path of previous reforms: half-measures that did nothing to fix Social Security's fundamental problems.
Every few years, financial experts have tinkered around Social Security's edges: they've teased a little more money out of the system by adding tax hikes, new reimbursement rates, stiffer retirement rules and so forth. And every few years, the date that Social Security would start deficit-spending moved closer to the present: it's now the year 2013. The microscopic nature of past reforms was eloquent testimony that our retirement system was economically catastrophic but politically untouchable.
What we did with Social Security was not unlike what Percy Bysse Shelley did with his own finances. Shelley, a brilliant poet but a terrible person, was notorious for living beyond his means and mortgaging his own future. As time went on, he tried to borrow money from nearly everyone he knew, accepting higher and higher levels of debt and rates of interest in the process.
Shelley died with huge unpaid debts. But there's no need to mortgage our future: we can reform Social Security by letting people keep their own money in private retirement accounts. Instead of paying 12.4 percent of your paycheck to the Social Security administration, you could choose where to invest your money, withdraw what you need for retirement and leave the balance to your heirs -- not the government.
After more than a half-century of government (mis)management of the money people pay into Social Security, it takes vision to consider letting people take responsibility for their own retirement through privatized Social Security accounts. Privatization is the fundamental alternative to the current program. And the economic question is settled: over the long run, private investment delivers a much better return than Social Security.
We deserved better from a group of experts who knew that their conclusions would get national government and media attention.
Mysteriously, the NCRP recognized this -- it just didn't want to do much of anything about it.
Like its predecessors, the NCRP recommended more tweaks to the system, such as raising the retirement age, changing the inflation adjustment rate and making minor alterations to tax law. (They also advocated sweeping defenseless state and local government employees into the Social Security system, despite the fact that many public employees are doing better under quasi-private non-federal government retirement systems.) That might have been more understandable in earlier years, when the benefits of privatization were not widely understood. But the NCRP also recommended a thimbleful of privatization. They advocated letting people invest 2 percent of their money in private accounts -- that is, 2 percent of the 12.4 percent of the payroll tax every employee currently pays.
Remarkably, four of the commission's co-chairmen -- federal lawmakers John Breaux (D - La.), Judd Gregg (R - N.H.), Jim Kolbe (R - Ariz.), and Charlie Stenholm (D - Texas) -- defended their use of the 2 percent solution with this sentence: "The commission is persuaded that most Americans will receive more retirement income from the Social Security program if individual accounts are incorporated into the system."
Unbelievably, nobody asked the obvious question. If a little is good, why isn't more better? If, over the long run, people will get more money if they have individual accounts, why not let them put as much money into those individual accounts as possible? It's crass to focus on money to the exclusion of everything else, of course, but we're talking about retirement security: what else, besides more money, could be relevant?
After all, letting people keep 2 percent of their own money means that they have to keep putting the vast majority of their payroll taxes into the same unworkable system -- the Social Security system that this commission was charged with reforming, and the one that will actually give workers just now entering the system a negative rate of return.
We deserved better from a group of experts who knew that their conclusions would get national government and media attention. This isn't a couple of city councilmen haggling over a zoning variance and then deciding to split the difference. This is Social Security: a program that the federal government spends more than a third of a trillion dollars on yearly -- more than one-fifth of its entire budget! This is the most important domestic government program we have. We ought to get it right.
The commission should have either advocated full privatization or explained why privatization was unacceptable. Instead, it compromised -- apparently for no reason besides raw politics -- and struck out.