I once thought personal accounts for Social Security were a good idea but have changed my mind….Overall the accounts are a bad idea…
Contributions that fund just the minimum cannot go into a meaningful personal account. People would opt for too much risk, knowing they would be bailed out if they fell short. Also, contributions that cover the minimum provide no individual return and, therefore, amount to a tax that discourages work.
Personal acounts have to supplement the minimum payout. But then why have a public program at all, rather than relying on individual choices on saving? I think there is no good reason to go beyond the minimum standard; that is why I view personal accounts as a mistake — they enlarge a Social Security program that already promises too much.
To provide an acceptable standard of living, baseline Social Security benefits should be indexed to prices. The practice of indexing initial benefits to past wages should be eliminated.
That is from the 4 April Business Week. Barro also supports raising the retirement age and opposes a boost in the payroll tax.
Addendum: Here is the column.