Considering the Texas Alternative to Social Security
Letter to the Editor

Regarding Merrill Matthews's Cross Country: "Perry Is Right: There Is a Texas Model for Fixing Social Security" (Cross Country, Sept. 24): In the 1980s, Galveston, Texas pulled its employees out of Social Security and set up an alternate plan based on individual accounts. As Mr. Matthews points out, this plan has generated higher returns and benefits than Social Security, seemingly pointing to a solution to Social Security's multi-trillion-dollar shortfalls.

But Mr. Matthews's arguments are ultimately a false promise. Social Security pays a low rate of return because it is a pay-as-you-go system, which transfers income from working individuals to beneficiaries. As a result, participants receive a rate of return equal to the growth of the wage base, rather than the higher returns available in the market.

Any given individual who leaves Social Security could likely do better on his own, but the loss of his taxes makes Social Security's funding problems worse. If a small group pulls out, like Galveston's employees, the system can make up the difference. But if everyone pulled out, Social Security instantly would face a $685 billion annual shortfall. Unless a reform plan addresses these transition costs, it won't produce any long-term gains. There's no free lunch.

Policy makers should not shy away from Social Security reform or personal accounts. But President Bush's failed reforms in 2005 showed that too many in Congress and in the country believed that personal accounts could painlessly fix Social Security's deficits, with support dropping once they realized this wasn't the case. Tax increases or benefit cuts are still needed. Those hoping for Social Security reform, including reforms based on individual savings accounts, should not make the same mistake again.

Andrew G. Biggs is a resident scholar at AEI

 

Texas Governor Rick Perry/flickr

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.