Social Security Privatization: A Simple Proposal

Abstract

This paper proposes a Social Security reform for the United States that gradually, but ultimately fully, privatizes the system. This proposal follows the “no-harm, no-foul” principle in that it preserves the benefits of older generations and yet promises the same or higher retirement benefits for the young. As such it is both economically and politically feasible.The paper demonstrates that the transition to a privatized system can be financed without any additional taxation, including additional payroll taxation. Our approach is likely to improve U.S. national saving and work incentives compared to the current system. It also has advantages over other privatization proposals that recommend or may require additional taxation to finance the transition. The paper points out, however, that there is only a limited window of opportunity for implementing such a reform of the U.S. Social Security system.