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Social Security: Why America Can and Should Allow Private Accounts

The opinions expressed by columnists are their own and do not necessarily represent the views of

The Social Security debate is no different than the debate over any other government program – there are just a lot more zeroes involved. Of course the more zeroes, the less willing Washington politicians usually are to confront the problem – particularly when so-called “guaranteed” benefits are at stake.

Still, there are three simple questions that can be asked of any government program – including Social Security – which if answered honestly will point us in the direction of sensible, sustainable reforms.

First, is the outcome the program seeks to achieve consistent with the founding ideals of this country (i.e. advancing liberty and prosperity for all people)?

Second, is government’s involvement absolutely necessary in order to achieve this outcome?

And finally (assuming the answer to the first two questions is ‘yes’), should government’s role in achieving the outcome consist of directly funding or managing a particular task? Or should the private sector bear that responsibility – with government assuming a more limited oversight or regulatory role?

The men who founded this nation – who risked their lives and liberties in order to break free from a repressive government – carefully weighed similar questions. It was important for them to enumerate and prioritize government’s responsibilities – and just as importantly to spell out its limitations. Otherwise the “more perfect union” they were creating risked becoming every bit as repressive as the government it was replacing.

Today, politicians rarely take into account these considerations. Our entitlement culture has created a new definition of “core” government functions – one that goes far beyond the scope of the U.S. Constitution and which relies on trillions of borrowed dollars to sustain. In defending the creation of “Obamacare” – yet another unsustainable government entitlement – a former Democratic Majority Whip summed up the prevailing sentiment when he said “there’s nothing in the Constitution that says the federal government has anything to do with most of the stuff we do.”

Truer words have never been spoken – of course this rare moment of entitlement honesty is buried beneath an avalanche of big government lies.

For starters, the Social Security “surplus” that politicians love to talk about is a myth. While it is true that the system has collected more in payroll taxes than it has doled out in benefits in recent years, the resulting “surplus” is nothing but a stack of government IOUs. According to the latest Trustees report, by 2015 the federal government will have borrowed $3.25 trillion against the Social Security Trust Fund.

These politicians also claim that Social Security is an inviolable “contract” between the government and beneficiaries of the program – classifying expenditures related to the program as “mandatory.” Both of these characterizations are false.

“Entitlement to Social Security benefits is not a contractual right,” the U.S. Supreme Court ruled in 1960.

Government has the authority to cut Social Security benefits anytime it wants – just as it has previously exercised the authority to expand those benefits on multiple occasions.

But now that Social Security is on the verge of insolvency benefits must be cut – or else taxes will have to be raised. There is simply no “third way” when it comes to managing the “third rail,” at least not if we limit our solutions within the current (government) framework. In fact for every year that this problem is ignored, the benefit cuts and tax hikes necessary to bring Social Security into fiscal alignment grow steeper – while the looming implosion creeps closer.

A decade ago the Congressional Budget Office (CBO) calculated that entitlement spending – including Social Security – would completely absorb the federal budget by the year 2060. Today that estimate has been moved forward by thirty-five years to 2025.

But what if the existing framework were changed? What if we looked at Social Security not as a program but as an objective? And what if we assessed that objective through those three basic questions mentioned earlier?

Obviously sustaining the prosperity of the American people through their retirement years is a concept that is entirely consistent with our nation’s founding ideals. But that doesn’t mean this worthwhile objective is government’s responsibility – and even if it were, it certainly doesn’t mean that a government program is the best method of accomplishing that goal. In fact as far as retirement savings are concerned, government produces a lousy rate of return compared to the private sector – and has demonstrated a chronic inability to manage its assets efficiently.

No wonder studies have shown that the even the lowest-risk voluntary private accounts (those equally weighted in treasuries and bonds) would produce a rate of return three times as high as Social Security – and that’s assuming higher-than-anticipated management fees. Higher returns mean additional consumer spending. Not only that, money which is currently subsidizing unnecessary government consumption would instead be used to grow the economy.

Permitting private accounts for Social Security would not break a contract with the American people – it would efficiently fulfill one of the founding ideals of our Republic. It would also help pull our nation back from the brink of economic ruin.

And without putting too fine a point on it, there simply aren’t any other options that don’t involve wrecking our economy.

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