Michael Tanner of the Cato Institute has a proposal for weaning young workers off of the Social Security system.

workers who chose the individual account option would receive a bond in recognition of their past contributions to Social Security. That bond would be a zero-coupon bond calculated to provide a benefit based on accrued benefits under the current Social Security system as of the date that the individual chose an individual account.

The so-called “transition cost” of privatization would be handled in part through continuing to collect the employer portion of payroll taxes, regardless of whether employees opt out of Social Security. This seems really onerous for today’s workers, but that reflects how out of balance the system is currently.

I think that the political problem that all privatization plans run into is that they force recognition of the huge off-balance-sheet liability of the government that consists of unfunded promised future benefits. The Cato proposal faces this issue squarely. If anything, Tanner’s paper bends over backwards to give an honest accounting.

For Discussion. If you were forty years old, would you elect to take a “recognition bond” in lieu of all future Social Security benefits in exchange for the right to take your 6.2 percent in employee payroll taxes and invest them yourself?