The Personal Lockbox: A First Step on the Road to Social Security Reform

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With President Bush’s call for comprehensiveSocial Security reform bogged down in themorass of partisan politics, many reform advocates have suggested starting the process with smaller steps. Recently, Sen. Jim DeMint (R-SC), Rep. Jim McCrery (R-LA), Rep. Paul Ryan (R-WI), Rep. Sam Johnson (R-TX), and others have proposed legislation to rebate Social Security surpluses to workers in the form of contributions to personal accounts.

Currently, the surplus, projected to be around $70 billion this year, is used for general government spending. In return, the Social Security Trust Fund is given a bond that will eventually have to be repaidout of future taxes. The Senate legislation (S1302) and House proposal (HR3304, known as GROW for Growing Real Ownership for Workers) are designed to prevent Congress from spending the surplus, which would allow individual workers to save that money toward their own retirement.

If the proposal were expanded to includeinterest currently attributed to the Trust Fund, workers would receive personal accounts averaging roughly 3.4 percent of wages over the next 10 years, only slightly less than the size that President Bush has recommended. That would give workers substantially more ownership, inheritability, and choice than they have under the current system.

At the same time, depriving Congress of thecamouflage of the Social Security surplus mayforce it to be more fiscally responsible, curbing the growth in government spending.

GROW and S1302 are not -- and should notbe -- the final word for Social Security reform. The proposals do little to address Social Security’s looming insolvency. The accounts would be only temporary, expiring once the surplus was exhausted.A more comprehensive approach would still beneeded.

However, S1302 and GROW represent an important down payment on larger reforms to come.

Michael D. Tanner

Michael Tanner is director of the Cato Institute Project on Social Security Choice and editor of Social Security and Its Discontents: Perspectives on Choice (Cato Institute, 2004).