What's New
Social Security and Hispanic Americans. Cosponsored by Cato and the Hispanic Business Roundtable on May 21, the conference examined Social Security reform from a Hispanic viewpoint. Click here to see the program.
Cato's newest paper, examines the "illusions" of the Social Security Trust Fund. See Cato's newest study released April 9, 2002 by former Congressional Budget Office director, June O'Neill.

Social Security This Week
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The President's Commission to Strengthen Social Security met with an end goal of giving Americans at least partial ownership of their payroll "contributions."
Click here to see the activity of the Commission.
Social Security, A Women's Issue. On April 9th, Cato and Women Impacting Public Policy cosponsored an event that focused on the issues surrounding Social Security reform and its impact on women. Click here to see the program and to watch the conference video.
Social Security and African Americans: Race, Retirement, and Reform. Cosponsored by Cato and the National Black Chamber of Commerce on March 19, the conference examined the issues surrounding Social Security reform from an African American perspective. Click here to see the program and to watch the conference video.
A Cato paper concludes that there is no second best alternative to privatization. See Cato's study released January 29, 2002 by Michael Tanner, director of Cato's project on Social Security Privatization.
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About the Project on Social Security Privatization

The Cato Institute has a long history of seeking alternatives to the current Social Security system. Since 1979 the Cato Institute has published more than 40 books, articles, and reports outlining the program's problems and crafting innovative policy solutions.

On August 14, 1995, the Cato Institute launched its Project on Social Security Privatization, the largest undertaking in the organization's history. The objective of the project is to formulate a viable blueprint for privatizing the Social Security system. The project publishes books, studies, and articles and holds conferences. The Cato Institute's experts examine the problems facing the current system, the methods that can be used to move towards a system of personal retirement accounts, and the effects that a new system would have on workers.

The Cato Project on Social Security Privatization has developed a market-based alternative to the current Social Security system. Rather than paying taxes into a government-owned fund, workers should be allowed to redirect their payroll taxes into individually owned, privately invested accounts, similar to 401(k) plans and Individual Retirement Accounts. The benefits of adopting a private retirement system based on savings, investment, and personal ownership include:

  • A substantial increase in retiree incomes as a result of higher returns on payroll taxes.
  • The potential to eliminate poverty among retirees.
  • Worker empowerment.
  • Personal control.
  • Greater retirement security.
  • Provides a death benefit to loved ones in the event of premature death.
  • Gives workers the ability to pass down wealth directly to their children.
  • An unprecedented burst of economic growth.

The Cato Institute has outlined the following principles for reform:

  1. Solvency is not enough.

    Workers deserve the best possible deal for their dollar. With Social Security facing a financial crisis--it will begin running a deficit in just 15 years--much of the attention has been focused on ways to keep the program solvent. Theoretically, this could be accomplished by raising taxes or cutting benefits. But Social Security faces a second crisis as well. Young workers will receive a negative rate of return from the program, less back in benefits than they pay in taxes. This low return, and other inequities, particularly disadvantages women, the poor, and minorities. Any Social Security reform must reverse this trend, raising the rate of return and providing higher retirement benefits.

  2. Individuals, not government, should invest.

    The only way to increase Social Security's rate of return is to invest Social security taxes in real capital assets. This should be done through the creation of individually owned accounts, not by allowing the government to directly invest payroll taxes. Individual accounts would give workers ownership and control over their retirement funds, allowing them to accumulate wealth, pass that wealth on to their heirs, and would give them a greater stake in the American economic system. Government investment would allow the federal government to become the largest shareholder in every American company, with the potential threat to corporate governance and the specter of social investing.

  3. Maximize consumer choice.

    Workers should be given as wide a range of investment opportunities as possible, consistent with regulatory safeguards against fraud or speculation. While investing in "Singapore derivatives" is clearly not envisioned, there is no reason to limit workers to only 2-3 index funds. As much as possible, the existing retirement savings infrastructure should be utilized, meaning workers would have a large number of safe and secure options. Moreover, a safety net would be provided guaranteeing that no senior would end up in poverty as a result of bad investments.

  4. Don't touch Grandma's check.

    Benefits to the currently retired and nearly retired should not be reduced. Indeed, by explicitly recognizing benefits owed to current retirees, privatization would guarantee those benefits in a way that the current political system does not. Making the transition to a new system while guaranteeing current benefits means that the government will have to issue debt, cut current spending, or sell assets, but those "transition costs" will be substantially less than the costs of maintaining the current system.

  5. More privatization is better than less.

    You don't cut out half a cancer. Given the advantages of a privatized Social Security system, there is no excuse for stopping at the privatization of only 2-3 percent of payroll taxes. Once Congress has conceded that private capital investment can provide better and more secure retirement benefits, it should press on and allow workers to control the maximum feasible amount of their retirement income.

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