This is an excellent explanation of the so-called “Ryan Plan” for reforming Social Security. There are numerous excellent ideas and the plan generally follows the plan for government workers. But the plan is tied to today’s and tomorrow’s workers, whose jobs are being destroyed or degraded in terms of earnings potential as a result of tectonic shifts in the technologies of production.
We must address and fix the fiscal insolvency problems of our Social Security system long term. Ryan’s proposal is to extend to workers the option for voluntary personal retirement accounts, which they would owned as private property and could be passed on to their heirs. This would be run and managed by the Social Security Administration with a safety net guaranteeing that the worker will get what you would have otherwise gotten if you had stayed under Social Security, whether or not you exercised the personal retirement account option. But the objective is for workers to enlist in a life cycle program that changes their portfolio as they grow older from aggressive investment and rates of return in stock index funds to, as one ages, stable bond index funds. In essence, the plan would work to guard against wild swings in the stock market by moving people out of stocks and into government bonds as they approached retirement. Thus, Ryan’s Social Security reform advocates shifting risk from society at large to the individual. Ryan said of his plan. “The system is off the hook to pay you that part of your benefit from those dollars, because you’re going to get that benefit out of your personal retirement account. Because the system’s off the hook to pay you that benefit, the system reduces its expenditures by that amount, that helps bring the system into solvency.” Ryan said, “What we’re talking about here is not privatizing Social Security or even partially privatizing Social Security.” Still the creation of “personal retirement accounts” is in effect a rebranding of privatization.
The proposal allows each worker younger than 55 to shift a portion of his or her Social Security payroll tax payment into a personal retirement account, chosen from a group of investment funds approved by the government. The personal investment component is phased in to allow a smooth transition. Initially, workers are allowed to invest 2 percent of their first $10,000 of annual payroll into personal accounts, and 1 percent of annual payroll above that up to the Social Security earnings limit. The $10,000 level will be indexed for inflation. After 10 years, the amount that workers can invest will be increased to 4 percent up to the inflation-adjusted level, and 2 percent above that. After 10 more years, these amounts will be increased to 6 percent and 3 percent. Eventually, by 2042, workers will be able to invest 8 percent up to the inflation-adjustment level, and 4 percent of payroll above that, for an account averaging 5.1 percent.
The choice of personal retirement accounts is entirely voluntary. Even those under 55 can remain in the current system if they choose. Further, those who choose to enter the personal account system also have an opportunity to leave the system, and those who initially opt out of the system of personal accounts can enter into it later on.
But critically, this plan and others aimed at reforming Social Security, relies on people who are employed. We need to widen that net to include earnings from dividends, interest, and rent attributed to owning income-producing productive capital assets.
