May 29, 2003 | Executive Memorandum on Social Security
President George W. Bush's continued support for Social Security reform, together with strong public support for allowing workers to place some of their payroll taxes in personal retirement accounts, makes it much more likely that Congress will consider the issue. However, some lawmakers may be tempted to pass a Band-Aid that avoids the reforms necessary to assure real retirement security for future generations.
Social Security reform is too important to working Americans to allow short-term political considerations to triumph over sound policy. To qualify as real Social Security reform, a proposal must meet at least the following six criteria:
Today's Social Security system provides a stable level of retirement income and protects against catastrophic losses, but it does not allow workers to accumulate cash savings to fulfill their own retirement goals or to pass on to their heirs. This gap needs to be filled. The best way to do this is to establish, within the framework of Social Security, a system of personal retirement accounts that are financed with a portion of existing Social Security retirement taxes. If a worker died before retirement, his or her personal retirement account would become part of the estate, providing a nest egg that heirs could use for income, education, opening a small business, or donations to a church or charity.
Real Social Security reform should not only protect current retirees' benefits, but also provide higher retirement income for working Americans, regardless of whether Washington faces deficits or surpluses. The only effective way to ensure that Social Security can provide this income is to allow workers to invest a portion of their payroll taxes in personal retirement accounts.
David C. John is Research Fellow in Social Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.