It's Our Money
Privatizing Social Security
By John D. Turner
Ok, call me dense - I don’t get it. The sight
of people marching around carrying placards reading "Don’t Privatize
Social Security" and "Social Security works for working families"
make no sense to me.
What is it that they are afraid of?
You would think the Government planned to take
all their hard-earned money that they have saved up in their Social
Security accounts and spend it. But wait - there is no money in
their Social Security "accounts"; the Government already has spent
it. Social Security as it now exists, is a pay-as-you-go program
built on a promise to deal you into the game when you reach the
appropriate age, and the Government spends every cent it takes in -
including the so-called "surplus" created by the last Social
Security tax increase that was supposed to keep the system solvent.
True, the system isn’t bankrupt - today,
although it will be some years in the future, necessitating a cut in
benefits, an increase in taxes, or both. The longer we wait to
address the problem, the more expensive the final solution will be.
Democrats know this; they have said so in the past. But since the
system isn’t bankrupt today, and they are not in power, able steer
the direction of change and take credit for fixing the problem, they
would prefer to stick their heads in the sand and pretend the
problem doesn’t exist. Besides, if the problem is fixed, they lose
the ability to scare senior citizens into voting Democrat by telling
them that the Republicans plan to cut their Social Security.
"Don’t Privatize Social Security". Why not? Is
it because the Government is doing such a great job with your money?
It’s funny; when it comes to 401k’s, health insurance, and the like,
these same people are champions of making it so that your benefits
are portable from one job to another. Yet when it comes to Social
Security, having control of your own money, instead of a Government
promissory note, is a bad thing.
If Social Security is privatized, with the
money going into the stock market, why then, some money grubbing
stock broker will make a profit in the process. Horrors! I would
much rather leave the money in the Government’s hands, so that the
Government can spend it instead! Besides, the likely proposal to
pass the Bush administration’s muster will contain a plan similar to
that found in TSP, the Federal Government’s version of the 401k.
Under this plan, there would be only a handful
of funds that one could choose from, predominately indexed funds, a
bond fund, and a money market fund. The default setup would be a
"Lifespan fund", which automatically rebalances the mix of stocks to
bonds based on the age of the worker; more in "riskier" stock
investments when young, and more in "safer" bond investments when
older and nearing retirement. This would enable workers to take
advantage of the potential growth of stocks when young, and cushion
them from the adverse effects of a market downturn just when they
are getting ready to retire.
Far from jumping off into an experimental
unknown, privatization of government pension systems have been
accomplished already, most notably in South America. Chile, for
example, privatized their social security system in 1981. While
problems with their approach have been noted, we can also learn from
their experience and ensure that some of the pitfalls they
experienced are avoided. For example, management fees on their
accounts are reported to be in the range of 16-20%. If these figures
are accurate, they represent a huge drain on any potential profits
that might accrue in these accounts. Any fund managers here in the
US who attempted to charge such high fees would soon find themselves
out of business, as no one would pay them. The current management
fee on TSP, for example, is around 0.3%, which is well below what
the funds typically yield, and much less than their average yield
over time.
Of course, one should also consider that
inflation in many South American countries, Chile included, is much
higher than here in the United States, and may contribute to numbers
such as this, which seem exorbitantly high by our standards when
taken on their face value.
Then again, what you read is colored by the
point of view of the author (this article included). People tend to
see what they want to see, and often spin the facts to support their
argument. Again, using Chile as a case in point, not everyone sees
Chilean privatization in the same light. Some see gloom and doom,
some see things more positively.
"Social Security Works For Working Families"?
What exactly does that mean? Particularly since the Social Security
tax is a payroll tax, meaning you have to work to pay the tax and to
qualify for the benefits. By definition, if you draw Social
Security, you "work" (or at least you have in the past, for at least
40 quarters). Even stockbrokers "work"…and pay into Social Security.
And will draw Social Security benefits when they retire - assuming
the system is still viable when that happens. It’s a catchy slogan,
but it’s semantically null; it means nothing with regards to solving
Social Security’s problems.
Social Security works - today. That doesn’t
have anything to do with what is going to happen in the future,
which is what privatization is intended to head off. And if nothing
is done, it is going to happen, just as sure as taxes (which are
sure to rise).
What do the Democrats have to offer in place
of privatization, other than pretending everything is just fine,
despite having said otherwise prior to the current administration.
More of the same, apparently. Then, when the system becomes
insolvent around 2018 or so, they will be faced with the same
quandary; raise taxes, cut benefits, or both. The raising taxes part
shouldn’t cause them any particular heartburn; they seem to think
that’s the solution to any shortage of funds. As for the cutting of
benefits, no problem there either. They can always blame Republicans
for having "mismanaged" things.
The liberals seem to have a basic mistrust of
anything that isn’t directly controlled by the Government. If it
involves private enterprise, it is automatically suspect. Someone
might benefit "unfairly" (i.e., make a profit). Letting the
individual make decisions, rather than leaving things to the wiser
heads populating the corridors of Congress is anathema as well. You
might not make the "proper" choices, as defined by those who know
better than you what you need or should do with "their" money.
If you controlled your own account, it would
be your money, not theirs. (Despite the fact that it never was
theirs in the first place; control is nine tenths of the law.)
The current privatization proposal, like the
President’s first-term "largest tax cut in history" is laughably
weak any event. Four percent is too small, making the benefit
marginal in the amount of time I have left before retirement. Couple
that with a cap of $1000, rising at a paltry $100 per year and it
makes no sense for me to dump the current plan in favor of the
private fund. For a worker just starting out, it may be a good deal,
but for someone who is already 48 years old, and making considerably
more than $40,000 a year, it makes no sense at all. Assuming of
course that the current plan will still be in place, with no benefit
cuts, when I reach retirement age; an assumption that may not be
warranted.
If I could have applied the entire amount that
currently goes into Social Security to a private account from day
one, including the half paid by my employer, I would have no worries
about retirement when the day comes. Even invested in money market
funds, I would have more than I will receive from the current Social
Security system.
Of course, that will never happen. Because
Social Security isn’t just about a "retirement" check when you reach
age 62, 65, 67, or 70, depending on when you elect to begin drawing.
It also includes disability programs, such as SSI, whereby you can
draw money if you are deemed unable to work for whatever reason.
These payments will still have to come out of the Social Security
budget, unless they are transitioned to the general fund. This is
unlikely, as they represent a very large unfunded liability.
The biggest problem with "tinkering" with
Social Security, from the Democrats point of view, is that it would
make changes to a program that, by definition, is sacrosanct. While
it is fashionable to describe Social Security as the "third rail" of
politics; one that you dare not touch under penalty of instant
political suicide, another explanation describes the Democrats
position more exactly. Social Security is the cornerstone of FDR’s
New Deal. And the New Deal is the centerpiece of the Democrat’s
contribution to modern Socialist society.
Only Democrats are allowed to "tinker’ with
what "Saint" Roosevelt established. Only they have the proper vision
and the best interests of the people at heart. Extending Social
Security, as Johnson did with the Great Society programs is fine,
and in keeping with Roosevelt’s vision. Privatizing the program,
taking it out of the hands of Government and putting it back in the
hands of the people, is regressive. Nothing good can come of it.
Things have changed quite a bit since
Roosevelt’s day. People live longer now, and draw Social Security
longer than they did in the past. We have slaughtered 40 million of
our future citizens in the name of "choice"; citizens that are not
around to pay Social Security taxes to keep the system solvent. We
have tacked numerous other programs onto the Social Security system,
all in the name of fairness and compassion, and these have added to
the burden. The system does not work as it once did. It is time for
a new vision, a "new deal".
It seems sort of odd, don’t you think, that it
is the "Conservatives" that are proposing progressive change based
on changing times, and the "Liberals" who want to conserve the old
way of doing things by preserving the status quo?
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