Social Security reform is not only necessary; it's unavoidable!
"As a retirement income program, Social Security is not only an increasingly poor deal for workers, but many workers . . . will actually receive less in retirement income benefits than they have paid in taxes," report William Beach, Stuart Butler, Gareth Davis, and Daniel Mitchell of the Heritage Foundation. "The Social Security system also is bankrupt," they continue. "It cannot pay promised benefits to tomorrow's retirees. But proposals to 'save' Social Security by reducing benefits . . . or by raising payroll taxes will further reduce Social Security's already low rate of return."
Beach and his fellow analysts point to the successful reforms in foreign countries such as Britain and Chile, where workers were encouraged "to invest some of their Social Security contributions in private savings plans. These privatization efforts are proving both popular and successful," they observe, emphasizing that "reformers have made sure that current retirees or workers nearing retirement would not be affected and would not see their benefits change."
The Heritage Foundation researchers call for similar reform to guarantee American workers "the right to place some of their Social Security payroll taxes into a private account." They recommend beginning with an educational campaign identifying Social Security as "a program in which the government spends every penny paid into the system, and in which benefits have little to do with actual contributions." They urge Congress to "require the Social Security administration to provide rate-of-return information" so that American workers can see "the low or even negative returns on their payroll contributions, as well as the dismal performance of Social Security compared with private alternatives."
Beach, Butler, Davis, and Mitchell emphasize that "any reform of Social Security must be combined with an ironclad commitment to pay specified benefits to current retirees, and perhaps to those close to retirement." Such a commitment, they suggest, "might take the form of a 'Social Security Bond,' with a status similar to that of a Treasury bond, that a retiree could put in a safe deposit box. This," say the analysts, "would indicate a specific inflation-adjusted stream of annual benefits for the beneficiary and his or her survivor, guaranteed by the full faith and credit of the U.S. Treasury."
Beach, et al. recognize that "ideology may lead union leaders to support the continuation of Social Security in its present form." They insist, however, that "doing so runs contrary to the interests of millions of ordinary union families. By forcing millions of union workers to pay taxes into a retirement and insurance program that yields them dismal rates of return, the current Social Security system acts to reduce the lifetime income of typical union workers by thousands of dollars," the Heritage analysts conclude. "Moving to a system that allows workers to place their payroll taxes in individual investment accounts while protecting the benefits paid to existing retirees would enable ordinary workers to reap the higher returns that have been available historically from equities and bonds."
