Social Security option

With Senate Democrats still unified in their opposition to any proposals to reform Social Security that include personal accounts, Sen. Jim DeMint, South Carolina Republican, may have come up with a proposal that will put them on the spot.

Mr. DeMint has said that he will introduce a bill that would rebate Social Security surpluses to workers in the form of contributions to personal accounts. Today the surplus, currently running around $150 billion per year, is used to pay for general government spending. In return, the Social Security Trust Fund is given a bond that will eventually have to be repaid out of future taxes. Mr. DeMint’s proposal would prevent Congress from spending the surplus, allowing individual workers to save that money toward their own retirement.

The proposal does little to address Social Security’s looming insolvency. Nor is it all that individual account supporters would like to see. The accounts would be temporary and far too small to rectify Social Security’s biggest problems: the lack of ownership, inheritability and choice in the current system. Limiting investment to bonds would deprive younger workers of earning a higher rate of return. As such, this bill should not be the final word on Social Securityreform. A more comprehensiveapproachwould still be needed, either now or in the near future.

But the bill doesreach across the ideological divide in awaythat should be hard for honest Democrats to resist.

Democrats have said that personalaccountstake money out of Social Security. Mr. DeMint’s proposal would only use Social security surpluses. The government’s general operating budget would be deprived of those funds, but Social Security’s finances would not be touched. There is no “transition cost.” Democrats have said personal accounts are too risky.Mr. DeMint’s proposal would let workers invest only in government bonds. All thatwould change is who holds the bonds. Instead of the Social Security TrustFund keepingthe bonds, individualworkers wouldholdthem. Workers wouldgain someofthe benefits of ownership and inheritability without assuming any market risk.

Democrats have said Social Security surpluses should not be used to fund non-Social Security spending.Mr. DeMint’s proposalwould represent a true “lock box,” devoting that money solely to the worker’s retirement. Without Social Security surpluses to hide behind, Congress would have to face up to the choices of running higher deficits, raising taxes or, hopefully, spending less.

This is not to say that the Democrats’ arguments have merit (personal accounts help Social Security’s finances over the long-term; markets are remarkably safe given the diversification and long investment horizons envisioned), but Mr. DeMint is meeting the Democrats on their own terms. Like a good poker player, he is calling their bluff. If their stated objections are removed, what is it that they are opposed to? The very idea of people owning and controlling their own money?

In the end, the Social Security debate is not about risk or transition costs or even actuarial solvency.Itisadebateabout whether people should be entrusted to make decisions about their own lives. It is a debate about who should control your retirement: you or the government.

Mr. DeMint has cleared away all the smoke and mirrors and put that debate straight in front of us. Now let’s see which side the Democrats come down on.

Michael Tanner is director of the Cato Institute’s Project on Social Security Choice.