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Tuesday, November 01, 2005


Social Security and Ownership

Social Security’s main reason for reform is not only because of its inefficiency, but its lack of well-defined property rights or ownership. For instance, the current program doesn’t allow ownership of your benefits, which was determined by Supreme Court Case, Flemming v. Nestor. The lack of ownership doesn’t give the worker a legally binding contract between the government and the worker. Therefore, there is no guarantee that the worker is going to receive the money at the age of 67. Even assuming that the government will not default on its loan, there is no way for the worker to know if he or she will live that long. So, if the worker is deceased prior to the age of 67, he or she cannot pass the benefits on to a living family member. Because, after all, how can you pass on a benefit you presumably don’t own?
But, how can you NOT own that benefit, if you worked for it?

The following proposal is called, GROW (Growing Real Ownership for Workers) and S1302 Proposal. It is designed to prevent Congress from spending the surplus and allow individual workers to save money toward their retirement. The proposal reads as follows,

Although there are differences between the House and Senate versions of the proposal,
at the core both are built around the same concept and provisions:

• Workers under the age of 55 could
choose to remain entirely within the
current Social Security system or participate
in a personal account option.
• The accounts would be financed through
a rebate of surplus Social Security taxes
(directly in the case of S1302 and
through an equivalent general revenue
transfer in the House version). That surplus
would be defined as the difference
between all OASDI tax income for a given
calendar year, minus the cost of paying
Social Security benefits for that year, plus
administrative costs. Each worker would
receive a rebate of payroll taxes directly
proportional to the size of the surplus as
a percentage of the system’s total tax
• Initially, workers could invest in government
bonds only. Unlike the special issue
bonds issued to the Social Security Trust
Fund, these would be fully marketable
government securities. Beginning in
2008 under the Senate proposal and in
2009 under the House plan, workers
would be offered additional investment
• Workers would own the funds in their
accounts and those funds would be fully
• At retirement, benefits from traditional
Social Security would be reduced by an
amount proportional to the account
contributions, plus an offset interest
rate equivalent to the realized yield on
U.S. Treasury bonds less an administrative
fee of 30 basis points.
• At retirement, workers could, but would
not be required to, convert the funds in
their account to an inflation-adjusted


This may be a small step towards reform but it is seems like a plausible one.

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