The Corner

The Cost of Personal Accounts

Some Social Security reformers like to debunk the idea that personal accounts create “transition costs.” The debunkers have got a point: Depending on how the reform plan is designed, creating the accounts merely moves the cost of paying benefits from the future to the present. In other words: Instead of having to come up with money in the future to pay for promised benefits, reformers would have to set aside money now that will be used to pay them. Even in the whole thing were financed by debt, the debunkers continue, it wouldn’t be an increase in the system’s liabilities. It would only be the conversion of an implicit liability (the promise of future benefits) into explicit debt. All of these claims are, I think, basically true, and I’ve made them myself.

But now Larry Hunter is accusing me of forgetting them. Once again, I urge the folks at the Institute for Policy Innovation to follow their own links. When I critiqued their favorite reform plan, I noted that it “increases the cost of the current system for the first 75 years and promises reduced costs only afterward.” That’s true as stated, and Hunter doesn’t really even try to dispute it. In earlier installments of this dispute, Hunter’s colleagues have argued that it is worth incurring $6.9 trillion in debt over the next few decades in order to reduce liabilities afterward. In other words, they acknowledge that their plan involves the trade-off that I say it does. That’s a better course, I think, than trying to spin those costs away.

There is one important caveat. In every discussion of the IPI plan, I have been using the most favorable possible assumptions. But the Congressional Budget Office estimates that some elements of the plan are so expensive that they increase the costs of Social Security over any timespan.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.


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