It should come as no surprise that proposals to create individual accounts as part of Social Security reform are faltering. As the layers of promises are peeled back, it becomes increasingly clear that investment accounts are neither necessary nor sufficient to fix Social Security. Accounts will not make millionaires out of minimum-wage workers. Higher returns from investing in stocks will not work as some magic elixir that cures the challenges confronting Social Security. Accounts will not result in huge estates to leave to the next generation.
But the idea should not be abandoned.
If Congress is willing to make the real choices necessary to fix the program - choices thus far swept under the carpet - these accounts have an important role to play, serving as the glue to make a balanced reform plan stick.
The three questions that must be answered in designing a Social Security fix are what, when, and where:
• What to do to rebalance Social Security?
The program's funding gap can only be filled by increasing revenues or cutting promised benefits.
There are plenty of options, from increasing payroll taxes, to using general revenues, to increasing the retirement age, to changing how we calculate benefits, to means-testing payments for the well-off. None are painless, however, so politicians generally have an aversion to discussing them.
One might assume that the major dividing line between the two parties would be whether to make changes on the tax or the spending side.
But instead, politicians of both stripes, well aware of the dangers inherent in honestly discussing these hot-button issues, are doing their best to avoid them by sparring over accounts.
• When to do it?
Assume Congress were to agree on a balanced package of, say, an increase in the payroll-tax cap, benefit reductions for wealthy retirees, and an increase in the retirement age. It would still have to decide on the timing of the changes.
One option would be to postpone as long as possible and return Social Security to a pay-as-you-go system, where payroll taxes would cover benefits on an annual basis. No changes would have to be made in the immediate future because the system would run surpluses for another decade or so. Then changes on both the tax and benefit side would be phased in as the fiscal crunch started to hit.
This Congress could claim victory for making the changes; future Congresses would be faced with the pain of implementing them.
The preferable option would be to start making changes immediately, thereby spreading the costs more fairly among participants rather than making younger workers and those yet to enter the workforce bear all the costs.
Moreover, it would allow Social Security to set aside resources in advance of when they are needed to pay benefits, to increase national saving. Given that current US saving rates - both governmental and individual - are dangerously low, this should be a top national priority.
Certainly there is a political motivation to push the tough changes as far into the future as possible, but this is neither fair to younger generations nor good for the economy.
• Where to save the money?
In the past, Social Security's surpluses have been saved in the program's trust funds.
The funds are invested in government Treasuries - in effect the government is lending money to itself promising to repay itself later. While the promise to repay the money may be there, the resources have already been spent.
Assuming we are willing to make the tough choices to address the shortfall right away, the program's surpluses will be larger and last longer.
Continuing to put money in the trust funds would be exactly the wrong thing to do - because the funds inevitably end up being used to underwrite another round of tax cuts, expanding the prescription drug program, or something else - as they have been in the past.
Sure, politicians could promise not to spend the money. But we have gone down that path before and have little to show for it other than a handful of Social Security promises with no feasible plan for how to pay for them.
The better option would be to save any Social Security surpluses in individual accounts so they could not be spent on other areas of government. No millionaires, no free lunches, but a better place to save money for Social Security.
Individual investment accounts don't answer the question of what to do to fix Social Security and when to do it - but if politicians are willing to confront those issues, such accounts do provide the "where."
They - not government trust funds - are the only real "lockbox" where politicians don't hold the key.
• Maya MacGuineas is the director of the fiscal policy program at the New America Foundation.