Weakening the OppositionIndividual Accounts
To emphasize how unfavorably Social Security compares with the
private alternative, the Social Security Administration should be
required to establish an individual account for each person participating
in the program. Furthermore, each person should be provided
with an annual statement showing how much he has paid into the
system and what benefits he can expect to receive. Individuals could
then compare their returns from private investment with their returns
under Social Security. Such a scheme would illustrate in cold numbers just
what the program means for different individuals, and would
help reveal the inter- and intragenerational distribution that occurs
under the current system. The retired population might then come
to realize that they have not purchased an earned annuity but instead
are receiving a tremendous welfare subsidy. Younger workers, on
the other hand, would see just how much of a loss they are taking by
participating in the program. This mechanism for demonstrating the
individual gains and losses that occur under Social Security is a key
step in weakening public support for the present system.
The technology for creating a reporting system already exists. Using
it simply requires an improvement in the computer system of the
Social Security Administration. The SSA, however,undoubtedly would
claim that the enormous cost and complexity of such a system would
prevent it from providing what would be highly embarrassing information.
Fortunately, there are private-sector companies, such as
Accucomp Financial Services, that are willing to compile the necessary
information from an employee’s tax returns for a very modest
fee. (Accucomp does it for $35)8 The SSA could be required to
contract out the service to such companies, or taxpayers could receive
a tax credit for arranging it themselves.
Detaching Supporters of Social Security
The final element of the strategy must be to propose moving to a
private Social Security system in such a way as to detach, or at least
neutralize, segments of the coalition that supports the existing system.
A necessary step toward this objective is to honor all outstanding
claims on the current system. Without such a commitment, we can
never overcome the political opposition to reform, because the retired
(or nearly retired) population will continue to strongly oppose any
package that threatens to significantly reduce their benefits. Retaining
the obligation to fund existing liabilities, however, will necessarily
place constraints on the mechanisms that can be used to move
the country towards a private system.
The problem of implementing a private system makes the British
model particularly attractive. It is clear, in Britain at least, that workers
are quite prepared to make some payments into Social Security
(even though they will not receive benefits), provided they acquire
the right to escape from a governmentally operated retirement system
in which they have little confidence. We should consider, therefore,
modifying Peter Ferrara’s phase-in plan.
Under Ferrara’s plan, workers would be allowed to invest part,
and eventually all, of the money they now pay into Social Security
in expanded IRAs, in return for a corresponding reduction in their
future Social Security benefits. Under our proposed modification,
workers who choose to opt out of the system would not only lose
their corresponding future benefits hut would even have them reduced
somewhat further for the privilege of getting out of Social Security.
This added reduction in benefits could be viewed as a tax that would
be used to pay off the system’s remaining obligations.
An interim “opting-out tax” hardly conforms with the principles of
fairness; yet it makes good political sense. If the support for leaving
Social Security is as great as it seems, then it is unlikely that the level
of contracting out will he significantly reduced by requiring workers
to make some payment into the system while they withdraw and lose
benefits (assuming, for the sake of argument, that they ever would
have received those benefits!). But the opting-out tax would have
important political advantages. It would serve to calm the fears of
the elderly, because the net phase.out losses to the Social Security
fund would be smaller under opting out than under the Ferrara plan,
for virtually the same reduction in future liabilities. Hence, under
an opting-out plan the support needed from general revenues would
be smaller, and the threat to the trust funds would be reduced.
This modification would slightly dampen the enthusiasm of young
workers, who are a strong segment of the coalition for change. But
on the other hand, this modification would help to meet the concerns
of the elderly and of the taxpayers and beneficiaries of federal programs
who might resist the use of general revenues to cover the
phase-in period.
Detaching workers who have made substantial tax payments into
Social Security may not prove to be too difficult. A number of proposals
have been put forward in which the worker’s accumulated
“contributions,” plus interest, would be given to him in form of an
interest-bearing bond, payable at retirement.” This bond would have
a market value and could be sold, with the proceeds to be invested
in a tax-deductible IRA. Using an appropriate version of this proposal
should make it possible to gain some support even from those who
have a substantial stake in the current system.
From (.pdf file):
http://zfacts.com/metaPage/lib/Cato-Heritage-1983-Lenin-Plan.pdf
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