MANY HAPPY RETURNS

By Dan Goodgame/Washington

How's this for an outrageous proposition: Americans should have more control over the way their retirement savings, through Social Security, are invested. That's what most members of the government's Advisory Council on Social Security concluded last week, as the group suggested three reform options that would postpone the day, now only about 15 years away, when the program will begin to collect less in taxes than it has promised to pay out in benefits.

The most market-oriented option, backed by five of the council's 13 members, would direct 40% of the Social Security payroll taxes now collected from each worker and his employer into a new personal security account, similar to the 401(k) and IRA accounts already familiar to most Americans. A second option, backed by two other council members, would allow a lesser degree of individual control. But to hear the howls of protest from union leaders, the seniors lobby and many Democratic lawmakers, you might think the pro-market council members had proposed to hand the keys to the Treasury over to a group of particularly selfish and spendthrift adolescents.

Critics of the personal security accounts fretted that the average American, if allowed to choose how to invest part of the 12.4% of his pay that he and his employer must now send to Social Security, might speculate on, say, cattle futures (without the helpful insider advice that Hillary Clinton got) or engage in similar recklessness. The we-know-better crowd are also worried that any partial privatization of Social Security might give the average Jill the heretical idea that those fica deductions from her paycheck belong to her and that she should control how all that money gets invested. This would, they said, undermine support for Social Security's lesser-known role as a safety net for the working poor and disabled. Senator Daniel Patrick Moynihan, the New York Democrat, predicted that the safety-net part of the program would suffer the fate of welfare. "Support for the redistributive aspects of Social Security would quickly erode," he said.

There are good reasons to believe, however, that harsh assumptions about Americans' compassion and prudence are not justified today--if they ever were. One of the most encouraging messages from the November election is that even as voters demand an end to welfare dependency, they want a stronger social safety net--not entitlement subsidies for rich and poor alike, but instead temporary help for those who work hard and suffer a layoff, a divorce or the illness of a child. Exit polls, as well as interviews by TIME correspondents with voters in cafes and K Marts, indicate that this desire for a stronger safety net--and the suspicion that most Republicans don't understand it--explains much of the voting gender gap. Women feel more vulnerable than men to calamities like sudden single parenthood. And in today's tumultuous, hyper-competitive, global economy, which creates many new jobs but with less security, men as well as women can imagine themselves needing help someday to keep their health insurance during a period of unemployment, to get loans for additional education or to support themselves if the stock market crashes just before they retire.

The majority of Americans can afford to save for their own retirement, and will need to do so. But even the personal-security-account option suggested by members of the Social Security advisory council would guarantee today's benefits for everyone over the age of 55 in 1998, while phasing in those between the ages of 24 and 54. And the system would maintain a safety-net program that would prevent any retiree from sinking into poverty. "No matter how you ask the question," says Republican pollster Robert Teeter, "Americans strongly support taking care of our seniors and anyone else who can't take care of themselves."

Senate majority leader Trent Lott seemed to understand this distinction at the end of the congressional session last summer, when he broke a logjam to pass not only welfare reform but also an increase in the minimum wage and a bill making health insurance more portable as workers move between jobs. Voters rewarded him and his colleagues with the Senate's highest approval ratings in a decade and with a Republican gain of two seats in the November elections.

Burned in their past attempts to reform Social Security, Republicans examined last week's advisory-council report with barbecue tongs and mitts. But Senator Bob Kerrey, a Democrat from Nebraska, immediately submitted legislation that would give workers more control over how their Social Security contributions are invested. Kerrey dismissed as "condescending" the notion that the average American can't be trusted to invest his own money. "Millions of middle-class Americans," he observed, "are investing successfully today," and their numbers are growing rapidly. Most of them are prudent enough to shift their savings gradually from the volatile stock market to stable short-term investments as they approach retirement.

The risks of partial privatization of Social Security pale next to the actuarial certainty of Social Security's bankruptcy if nothing is changed. And in its current form, the program's regressive payroll taxes already impose a huge burden on most working families, who will never get back what they're paying into the system and are forced to subsidize retirees who are, on average, wealthier than they are.

Social Security is scheduled to start spending more than it collects in about 2012, just as the huge baby-boom generation begins to retire. By 2029, even the so-called Social Security trust funds would be depleted. Thanks to men like Kerrey and investment banker Pete Peterson, president of the Concord Coalition, more and more Americans understand that the Social Security "trust fund" is a myth. Every week's collection of Social Security payroll taxes first goes to pay benefits to today's retirees; then the surplus (currently about $565 billion) is immediately used to finance other federal spending. What goes into the "trust funds" is government ious that can be repaid only through some painful combination of spending cuts, tax hikes or further borrowing.

Six members of the advisory council, including a former Social Security commissioner and three union leaders, backed a third option that would allow government bureaucrats, rather than individuals, to invest up to 40% of Social Security's assets in the stock market. It would also increase payroll taxes--not in exchange for higher retirement benefits but for lower ones than workers were promised back when taxes were lower. And when might this promise, like the others, become inoperative? No one can say. Little wonder that many workers now judge that their nest egg would be safer in their own hands than in the government maw.