Legal Obligations And Personal Accounts

David Hogberg

Frank responded to my post from yesterday here. Let me deal with his points in order. First, I wrote:

"[N]owhere did it tell me that Social Security is only legally obligated to pay me only 73% of my benefits in 2042. Since I'll be 72 that year, what reform proponents have been warning me about has concerned me greatly."

Frank responded:

"Legally obligated"? I want to know more about that, because I was under the impression that there wasn't really a legal obligation on any of the benefits.

Here’s what I meant: Under current law, if the Social Security system redeems a bond in the trust fund to pay for benefits, the government is legally obligated to make good on that bond. Once the trust fund runs out of bonds in 2042, the Social Security system no longer can make a legal claim on government revenues to pay full benefits. It is only legally obligated to pay me what it can afford to based on payroll taxes. And yes, under current law I am entitled to a benefit. Congress can, according to the Supreme Court, change the law. But as long as Congress doesn’t, once I reach 62 years of age Social Security is legally obligated to pay me a benefit. Next, Frank states,

But here's the larger issue: Hogberg's percentages have nothing to do with presumed contracts so much as presumed ability to pay. And privatization, the supposed Holy Grail of so many on the web site for which he posts, does nothing.

Note how the acknowledgement by our side that personal accounts don’t by themselves fix the problem has been morphed by the left into personal accounts does nothing. That’s incorrect, for three reasons. First, it depends on the plan. In the Ryan-Sununu plan the personal accounts do solve the problem because the plan creates very large accounts. In exchange for the accounts, people give up a large portion of the benefits paid out by Social Security. Second, if we go with a plan like Plan 2 outlined by the President’s Commission on Strengthening Social Security, the accounts solve part of the problem because in exchange for the account, the government paid benefit is rolled back based on a percentage of what the account earns in interest. True, most of the problem is solved by switching from the benefit formula from wage indexing to price indexing. But since the rollback does solve part of the problem, it is incorrect argue that personal accounts do nothing. Third, that argument overlooks the reason reformers are promoting personal accounts—it is to offer something in exchange to future beneficiaries for switching to a price-indexing system. Future beneficiaries will more readily accept a switch to a system in which the government delivers less than what it promised in benefits if said beneficiaries are given a chance to make up the difference. What reformers are in effect telling them is, “Yes, your promised benefits will be less but in exchange we are giving you an opportunity to make it up with a personal account.” In short, personal accounts solve the political problem. Finally, Frank says this about me: “If he's concerned about meeting benefits payments, there is no reason for him to have allied himself with the privatization crowd.” Normally I wouldn’t take this thing seriously since I’m a big boy and have given careful thought to which side I’ve joined, and Frank would do well to respect me as such. However, I’ve been getting some emails in much the same vein lately, telling me what I need to do, how to behave, how many times to chew my food, how to brush my teeth, etc. Out of curiosity, has anyone else been getting emails like this? Go here and let me know by leaving a comment.
Posted by David Hogberg on March 16, 2005 11:59 AM to Social Security Choice