Beating Democrats on Social Security Reform

In his N.Y. Times op-ed (Feb. 28, 2023), columnist Paul Krugman admitted that Social Security is indeed not like a pension plan, but rather incorporates significant wealth transfers from higher- to lower-income participants.

The thing about Social Security is that from the beginning it was designed to encourage misconceptions.  It looks, on casual inspection, like a giant version of a private pension plan.  You pay into such a plan during your working years, contributing to a pension fund, and when you retire you receive payments from that fund in proportion to the amount you put in. ...

I'm pretty sure that it was set up to look like an ordinary pension fund because that made it politically easier to sell. But in reality, Social Security has never been run like a private pension plan.

He makes the further observation:

I get a lot of mail from people saying that we should simply eliminate the upper limit on the payroll tax. That would certainly raise a lot of money. But bear in mind that there's no fundamental reason Social Security has to be financed with payroll taxes — we only do it that way because back in 1935, F.D.R.'s advisers thought it would be a good idea to dress Social Security up to look like a private pension fund.

Republicans should take good notes, because Krugman has outlined a line of attack that they could use for reforming entitlement programs.

Replace Social Security with Personal Treasury Accounts

If you don't like what is being said about reforming Social Security, then change the conversation.  Instead, let's talk about replacing Social Security with Personal Treasury Accounts.

The greatest myth sustaining the widespread popularity and legitimacy of Social Security is that recipients are simply getting back what they paid into it.  Therefore, Republicans must convert this myth into reality to change the conversation and bypass the conventional unpalatable options for saving the Trust Fund:

  • Raising the retirement age.
  • Raising payroll tax rates.
  • Raising the current $160,200 maximum for payroll taxes.
  • Raising the percentage of Social Security benefits subject to income taxation.

Each of these options is off the table because Trump, McConnell, and McCarthy know they are election-year kryptonite.

The PTA Nuts and Bolts

Below is a brief outline of the Personal Treasury Account (PTA) program:

The current level of Social Security payroll taxes paid by each taxpayer would be deposited into a separate personal account owed directly to the taxpayer upon retirement instead of being credited to the Social Security Trust Fund.

The taxpayer would own shares in a U.S. Treasury Mutual Fund that is managed by the Treasury secretary.  Payroll tax collections would be used to purchase Treasury Bonds.

Upon reaching a minimum retirement age, PTA owners have the option to withdraw an amount of money from their PTA, not to exceed a maximum amount based upon their expected remaining lifespan.

When the PTA owner dies, then he would transfer his remaining PTA balance to the PTA of named, eligible beneficiaries.

Advantages of the Personal Treasury Account

Take Control Away from Politicians

Unlike Social Security, the PTA avoids all the budgetary pitfalls of changes in life expectancy, retirement age, and benefit payouts that accompany all defined benefit pension plans like Social Security.  Because the PTA is a defined contribution plan, the PTA owner receives whatever he earned instead of whatever politicians in Washington decide to give him.

Taxpayers would be shielded from budgetary trauma of changes in life expectancy, benefit formulas, and retirement age that politicians manipulate to win votes without regard to fiscal consequences in the future.

Appeal to Young Voters

Republicans could champion the PTA to attract young voters who hear doomsday stories about Social Security not being around when they retire.  Knowing that the PTA is their personal property that cannot be arbitrarily decreased or revoked is preferable to the uncertainty and opaque machinations of Social Security.

Address Unfairness of Differences in Life Expectancy

The Social Security Administration bases its monthly payout formulas on remaining life expectancy at ages 62 to 70.  Recipients receive a life annuity of a fixed amount that stops when you die.  If you take your first Social Security distribution at age 65 and then die one year later, then your heirs receive nothing.

While this is sound budgeting for the aggregate population, it will be unjust for separate classes of recipients. 

The expected lifespan of men is less than women, so men, on average, men will receive fewer Social Security payments than women.

On average, the expected lifespan of lower-income recipients is less than higher-income recipients, so lower-income recipients will receive fewer payments.

On average, the expected lifespan of Black Americans is less than White Americans, so they will also receive fewer payments.

The PTA fixes this defect in Social Security's lifetime annuity payout formula by converting to a maximum distribution formula, similar to the Required Minimum Distribution formula the IRS has for Individual Retirement Accounts.  This ensures that you cannot outlive your savings, and it also ensures that whatever you earned during your lifetime will pass on to your heirs if you die earlier than expected.

Wage Class Warfare

Republicans should bait the Democrats to open the class warfare battle front for Social Security reform.  That battle will only tarnish voter perceptions of Social Security and remove the scales from voters' eyes about how unfair it is to middle- and upper-income voters.

The current Social Security benefit schedule is not proportional to the lifetime payroll tax contributions of the recipient.  Social Security is a massive wealth redistribution program posing as a pension plan.  The PTA would force Democrats to admit this deceit in their political marketing for Social Security and explode the myth that recipients are receiving only whatever they invested in the program.

Democrats know that targeted welfare programs are not nearly as popular as Social Security.  If voters understood the wealth transfer component of Social Security in contrast to the PTA, then that would severely undermine its popularity.

Phasing In the Personal Treasury Account

Over 50 years, the PTA would eventually replace Social Security until no more payroll taxes are credited to the Social Security Trust Fund.  The simplest approach would be to exclude workers who have already paid into Social Security and then introduce the PTA solely to new workers.  This proposal would have the least beneficial fiscal impact in the short term, but it would remove the long-term fiscal threats posed by the current system, and it would arouse the least opposition.

Once in place, politicians could use momentum from the popularity of the PTA to expand participation to workers who have already contributed to Social Security, and thereby obtain additional cost reductions in Social Security.


Republicans have always played defense on Social Security reform.  The bottom line is that Democrats sound generous, and Republicans sound miserly and mean.  Paul Krugman assures his New York Times readers that Republicans are only manufacturing a fake fiscal crisis to create fear and support for unnecessary spending cuts.

Unlike President Bush's ill-fated 2005 proposal to privatize Social Security, a defined contribution plan like the PTA that invests in Treasury Bonds is fiscally sustainable, safe, and more popular with middle- and upper-income voters than Social Security.

Republicans can use the leverage of the debt limit negotiations to enact the PTA and begin winning the debate on entitlement spending reform by exposing the weaknesses of Social Security and mercilessly attack the Democrats who defend it. 

Image: 401(K) 2012 via Flickr, CC BY-SA 2.0.

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