Social Security Privatization

Can Social Security be privatized? What is your opinion of the subject?

Yes. Social Security can be privatized. In fact, it should be privatized. Consider the following facts:

1. Social Security is a pay-as-you-go retirement system. The unfunded liabilities (that is, what we owe future retirees today) is in excess of six trillion dollars--more than the national debt--and it is climbing.

2. In 1950 there were 16 workers providing benefits for each retiree. Today that ratio stands at 3.3, and it is dropping.

3. A worker born in 1970 will be the first to get back less money than they put in (about 99 cents on the dollar).

4. Social Security taxes have increased from two percent to 12.5%. In addition, Social Security Trustees estimate that taxes will have to increase to 18.8% for the "trust fund" to survive past 2012 (without cutting benefits).

As you can see, the system is in trouble. Fortunately, many Americans are beginning to recognize that fact. A 1994 poll found that more people in their twenties (Generation X) believed in Unidentified Flying Objects (UFO) than believed they would be able to collect Social Security benefits.

Depending on the degree of privatization, a private Social Security system would have a major impact on America's financial health. There have been several privatization plans floated around Washington in the past year.

Let's consider two of the most recent:

1. Congressman Tom Daschle has suggested that the U.S. begin investing money raised from Social Security taxes in the stock market, instead of government securities. While I was happy to hear Mr. Daschle implicitly endorse market processes, do we really want the government taking additional risks on our behalf?

Consider all the products and services that Americans report general satisfaction with--electronics, appliances, automobiles--each have little or no government involvement. Now consider the products and services that Americans report the greatest dissatisfaction with--public schools, public housing, the Post Office--each is dominated by government's legal monopoly. Why should we trust the same people who gave us the Post Office to invest for our retirement?

In addition, if you thought our tax code was politicized, can you imagine the wrangling that would take place over the billions of dollars in Social Security money that would be invested in the stock market? Normally creative, risk-taking, talented entrepreneurs would be forced to dedicate even more of their energy to ensuring that they too received a piece of government's investment pie. It would be a terrible waste.

Steve Forbes recently introduced a plan for privatizing Social Security. The Forbes' plan would allow Social Security to remain intact for those currently receiving benefits, but would allow younger Americans to deposit part or all of their payroll taxes into a personal savings account. The money would be accessible for use in investments such as stocks, bonds, mutual funds, or certificates of deposit.

While this is a superior alternative to the Daschle plan, the government is still saying, "You may have access to your hard-earned money, but you may only spend it in government approved categories." In addition, the National Center for Policy Analysis in Texas reports that the Forbes' plan will "guarantee a minimum safety net for protection." If this means that I may receive a minimum monthly payment from the state, regardless of my investment choices, the U.S. may be setting itself up for greater financial troubles. After all, why exercise a prudent use of limited resources if the state will guarantee my rate of return?

Though it may not be as politically palatable as the plans above, I prefer getting the government out of the retirement business altogether. Who knows how to plan for my future better, me or a collection of politically appointed trustees in Washington?

Social Security is a Ponzi Scheme (early investors are paid by later investors creating no new wealth). As with other government programs, Social Security keeps the poor in poverty, separates parents from children, sets up intergenerational political conflicts, is a waste of resources, and fails to keep the many promises made by its early champions.

I hope that my observations have been of some assistance.

I will mail you an op-ed from the Wall Street Journal by Steve Forbes about his privatization plan, and an interesting article from the NCPA entitled, Minimum-Wage Millionaires: The Capitalist Way to Save Social Security by Sam Beard.