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Property Rights

Brad Delong finds something to sort of like about turning Social Security into a system of private accounts:

There is one point where I have no quarrel with Lazear: his pointing out that private accounts are the beneficiaries by Right of property, which will be enforced by the courts, while legislated benefits are the beneficiaries' only by Grace of Congress. I'm not certain how much of a difference this is (for Congress has unlimited powers to tax incomes and to distinguish among different income streams as it taxes them), but it is a real difference.
A few remarks on this. One is that while I've heard much touching concern from certain privatizers about this "Grace of Congress" issue, the more typical conservatarian complaint about Social Security is that due to the ever-growing voting power of senior citizens it is, in practice, nearly impossible to cut Social Security benefits. So the whole issue strikes me as being of academic concern only. Beyond that, doesn't Congress have the power to reorganize the Social Security Administration as an independent corporate entity (with officers appointed by the government and with a restricted charter, etc., etc., etc.) endowed with a legal right to sue when the funds ostensibly entrusted to it are misused? Over course, Congress could take those rights away, but as Brad writes private accounts don't ensure that the money won't be taken away, either. A grant of legal personality separate from the federal government would raise the political barriers to confiscation of the trust fund, just as private accounts would.

February 7, 2005 | Permalink


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Mark Schmitt

"Like Nicholas Kristof or Gregg Easterbrook, I could argue for a different approach to Social Security or tax reform, for example, and I have, but right now the only question on the table -- and the only one that will even be permitted onto the table -- is whether you are for or against the president's proposal as he has loosely put it forward. Any alternative has value only as rhetoric, and perhaps only to avoid the charge that you don't have an alternative."

Emphasis in the original

Posted by: bob mcmanus | Feb 7, 2005 4:23:00 PM

It's not clear to me that the private accounts really confer the type of property right that Brad thinks they do. Clearly, the government is attaching several strings to the accounts' use, including the possibility that the account will revert to the government after the accountholder's death. The holder doesn't own the whole "bundle" of rights that we usually associate with "owning" property outright, so their right to enforce their rights may be curtailed to the point where it isn't as valuable as Brad thinks it is.

Posted by: Matt Davis | Feb 7, 2005 4:32:19 PM

I'm not sure who you're talking about when you say "the more typical conservatarian complaint about Social Security is that due to the ever-growing voting power of senior citizens it is, in practice, nearly impossible to cut Social Security benefits". What's impossible is cutting benefits to current, non-wealthy beneficiaries. Cutting benefits to future beneficiaries is easy-peasy. Social Security benefits have been cut at least three and arguably as many as five times over the last forty years, most recently in 1993. Congress has found plenty of ways to cut SS when it's needed to: increase the percentage of it which is taxable, decrease the threshold for taxation, increase the retirement age, tweak the indexing schedules. So many shells to hide the pea under. When you hear twenty-something assuming that they won't receive a dime from social security, there are plenty of reasons that that might be true other than system default. Much more likely is that the benefits will simply be nibbled away, over years of small cuts. It's not like you can sue the feds for breach of promise.

Posted by: dave | Feb 7, 2005 4:41:01 PM

reorganize the Social Security Administration as an independent corporate entity

With the power to tax?

Posted by: Al | Feb 7, 2005 4:49:40 PM

With the power to tax?

Yes, Al: the power to tax brains. You're exempt.

Posted by: ahem | Feb 7, 2005 5:08:15 PM

It's such a breath of fresh air to read such a smart, well informed and young commentator such as MY. I hope that as he ages, MY does not devolve into a cynical, embittered hack like MK or AS.

Posted by: Stephan Mertin | Feb 7, 2005 5:10:04 PM

Yes, Al: the power to tax brains. You're exempt.

Whew. Obviously, my tax bill would be enormous.

Anyway, I wonder if you could point me to an "independent corporate entity" to which the federal government has given the power to tax all of us.

Posted by: Al | Feb 7, 2005 6:45:28 PM

"legislated benefits are the beneficiaries' only by Grace of Congress"

DeLong courtworships. In fact, the probability of Congressmen cutting benefits is no higher, probably lower, than that of judges of the extremely conservative bent with whom Republicans have loaded up the bench. Between the protection of retaliation at the polls and the tender mercies of a conservative conscience, I'd take electoral accountability every time.

Posted by: Fearful | Feb 7, 2005 7:11:03 PM

To follow up: here's the reason I ask the question. Without its own power to tax, the fact that there is an "independent corporate entity" is pretty meaningless, isn't it? Obviously, without that power, it would still have to get the bulk of its money as a transfer from the federal government. But the federal government could call the money it is transferring whatever it wants, including "bond repayments".

That is, let's say we have the following situation in year 2020: Scheduled SS payments are $1,000,000. Expected FICA tax revenue is $900,000. So, to meet scheduled payments, the Social Security Administration has to redeem $100,000 of the T-Bills from the trust fund, right?

Now, in Matthew's assumed Bush "default" scenario, Bush would just default on the T-Bills, so the Social Security Administration would only get the $900,000 of expected FICA tax revenue.

But, if we made Social Security an "independent corporation" (call it "SSA Corp") it would have to get its $900,000 from somewhere. It could either impose taxes itself or it would depend on the federal government to send it the $900,000 in funding. If it couldn't impose taxes itself, it would get $900,000 from the federal government and then turn around and say "SSA Corp is also redeeming $100,000 in T-Bills". But the federal government could just say "that $900,000 was really $800,000 in funding and $100,000 in redemption payments". So SSA Corp would still only have $900,000 in cash to fund benefits, but would also have $100,000 less in T-Bills - the exact same scenario as if Bush had simply just defaulted on the T-Bills.

Posted by: Al | Feb 7, 2005 7:23:05 PM

Not even discussing all the problems that several have mentioned, about Gov. inteferring, etc., the fact is that the only reason their would be a balance in the account for beneficiaries, is if the retiree under spends to ensure the benefit last his life time and doesn't leave him/her in a homeless shelter eating dog food for the last part of his life.

This might be all right for those in the earnings bracket to need a financial planning firm, but fot the average (median)wage earner, its a cruel choice.

Soc.Sec. does not provide an adequate retirement income for anyone, but a fixed floor that can be counted upon, if you make mistakes with your other savings.

Posted by: Jerry | Feb 7, 2005 8:19:13 PM

Dear Matt,
could you please make the font size of the quoted text smaller? It's too confusing to have it be the same size as all the other text.

Posted by: xoxo | Feb 7, 2005 9:50:52 PM

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