March 4, 2004
By Edwin J. Feulner, Ph.D.
The TV commercials
used to say, "When E.F. Hutton talks, people listen." Well, E.F.
isn't saying much these days, but the financial world has a new
sage - Federal Reserve Chairman Alan Greenspan. Markets, traders,
even lawmakers hang on his every word.
Recently, the world's most respected living central banker offered
a prescription to save the struggling Social Security program. In
congressional testimony, Greenspan urged Congress to make the
president's 2001 tax cuts permanent and asked them to slash
government spending as much as possible. But he also told lawmakers
they should cut the Social Security benefits they're promising to
Greenspan is certainly correct about the first two policy
prescriptions but is off on the third. We do need the tax cuts, and
lawmakers should trim spending. But cutting benefits isn't the way
to save Social Security. We can put the program on solid ground by
simply setting up a Personal Retirement Account for anyone who
The problem with Social Security - for now - isn't a lack of
income. There's more money coming in today in taxes than is going
out in benefits. The problem is that in the near future - about
2018, only four presidential elections from today - we'll owe more
in benefits than we collect in taxes. And there's nothing in the
so-called Social Security trust fund except IOUs.
The answer is to provide a better return on our investment in
Social Security. That means doing what President Bush has talked
about - making the program a source of ownership for Americans.
This does not mean
letting the federal government buy stocks. Imagine Washington as
the majority stockholder in I.B.M., Microsoft or General Electric.
We'd kill off the very innovation we need to encourage and damage
the very companies we're counting on to provide 21st century
This does mean allowing individuals to make decisions about their
own money. Everyone should have the ability to invest at least a
portion of his or her Social Security taxes, in order to build a
secure retirement fund. That's what PRAs do.
Americans are comfortable with this concept. Most of us already
have IRAs or 401(k) accounts. We set aside real money and invest it
in stocks. And we understand that, over the long haul, the market
will go up, providing a good return on investment.
There's no reason not to allow us to direct a portion of our
Social Security taxes into a similar Personal Retirement
However, we should
also respect the wishes of those who are nervous about investing.
That means providing individuals the chance to opt-out and stay
with the current Social Security system.
Of course, that means they'll be locked into Social Security's
miniscule returns. For example, according to the
calculator on our heritage.org Web site, my 1-year-old
granddaughter can expect to get back only about a 1 percent return
on her Social Security investment (and that's a best-case
scenario). She'd be better off putting her payroll taxes into old
fashioned U.S. Savings Bonds.
For a boy born today, the news is even worse. His rate of return is
negative 2.9 percent. He'll pay in more than half a million dollars
during his life, and collect less than that in benefits. Simple
fairness requires us to create PRAs, so today's children can become
tomorrow's investors and owners.
Social Security can be saved, and we won't have to reduce benefits
to do so. But we will need strong presidential leadership in order
to get Personal Retirement Accounts through congress and into
In his State of the Union address, President Bush called for
fundamental reform in the over committed Social Security program.
But he didn't detail what that reform should look like. That makes
it possible for others to drive the debate.
The future of
Social Security is in our hands. Let's make sure we protect it.
The TV commercials used to say, "When E.F. Hutton talks, people listen." Well, E.F. isn't saying much these days, but the financial world has a new sage—Federal Reserve Chairman Alan Greenspan. Markets, traders, even lawmakers hang on his every word.
Edwin J. Feulner, Ph.D.
Read More >>
Request an interview >>
Please complete the following form to request an interview with a Heritage expert.
Please note that all fields must be completed.
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 200,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More
© 2013, The Heritage Foundation Conservative policy research since 1973