Cato Institute Supports Pozen's Progressive Plan

Let Go the Status Quo: "Liberal's different tacks on price indexing versus maintaining the status quo reveals that their true intent is to postpone reforms for as long as possible... The calculation, of course, is that when the money runs out, lawmakers won't have the nerve to face retired baby-boomer voters' wrath by cutting benefits. Taxes must then be increased, resulting in an expanded (but not more useful) system: So what if it imposes yet heavier burdens on generations to follow.

The cynicism of the liberals' strategy ratchets up to yet another level when personal accounts are brought up. Essentially, personal accounts would help participants clearly distinguish between that part of today's 12.4 percent payroll tax that is a pure tax and the part that constitutes true retirement saving. The latter would be returned as as retirement benefits and the former would go to pay for our generosity to previous retirees.

The strongest but least appreciated advantage of personal account reforms would flow from clarifying that participants pay less than 12.4 percent of their earnings in pure taxes. The appreciation that taxes are lower than it appears at present will spur labor market participation, increase output, and improve the economy's capacity to pay future retirement benefits.

Liberal critics, however, refuse to acknowledge that personal accounts would be a part of Social Security and not independent of it. Rather than destroy support for Social Security, personal accounts will strengthen the system's finances by ensuring that funds meant for retirement are effectively sequestered and invested -- unlike under the current system where they are deposited with the federal government and entirely consumed for non-Social Security purposes."