Centrist Policy Network

Op-Ed by Maya MacGuineas: Individual Accounts As Part Of Social Security Reform From A Fiscally Responsible Perspective

Ed Lorenzen
March 30, 2005

An op-ed in the Christian Science Monitor by Centrist.Org Chairman Maya MacGuineas makes the case for including individual accounts as part of Social Security reform from a fiscally responsible perspective -- individual accounts provide a more effective method to save current payroll taxes to pre-fund a portion of future benefits.

MacGuineas argues that we should agree on a package of changes to Social Security to bring the system into balance and increase savings for retirement. Such changes should begin immediately in order to spread the burden fairly across generations and to increase national savings in advance of the coming demographic tidal wave. Individual accounts then become a mechanism to ensure that the savings from these changes are actually saved to meet future retirement needs and not used to finance current consumption elsewhere in the budget.

Individual accounts are often described as taking money away from the Social Security system. In reality, they represent a different approach to saving current payroll taxes to fund future retirement income.

Instead of using payroll taxes to finance current consumption in the rest of the budget in exchange for IOUs that represent a legal obligation by Treasury but not economic assets, individual accounts would ensure that current payroll taxes are truly saved for retirement income. The total assets of the system would remain the same, but a portion of the system assets held in Government IOUs would be replaced by individually owned accounts saved for retirement.

Links:
Maya MacGuineas: The Three W's of Social Security Reform Christian Science Monitor (March 30, 2005)