Saving Social Security
by Bernard Chapin
15 March 2004
Without reform Social Security is on the brink of financial insolvency.
One of the more colorful
memories I have from college debate was our frenetic use of the phrase, “We
stand on the brink!” My partner and I would spout this out mechanically
in response to any innocuous proposal the opposition made and then link their
arguments to world war, depression or a nuclear winter. I was reminded
of our promises of calamity last week after I heard Alan Greenspan’s testimony
regarding Social Security and it's being on the brink of financial insolvency.
Greenspan said little that was not already known, but our politicians feigned
surprise at his words. This was undoubtedly an attempt on their part
to avoid correcting a leaking, debilitated entitlement program that, along
with Medicare, may soon bankrupt the nation.
The program’s financial health is woeful:
“In fact, in less than 15 years Social Security will begin running a deficit,
spending more on benefits than it takes in through taxes. Overall, Social
Security is facing unfunded liabilities in excess of $26 trillion. Trying
to fill a gap that size by increasing taxes would cripple the American economy
and place an intolerable burden on younger workers. Unless the system is
reformed, therefore, benefit cuts are inevitable.”
One researcher estimated that 4.9 trillion dollars must be invested into
the program over the next 75 years to keep it solvent without raising taxes
or limiting benefits. Very soon, Social Security expenditures will
devour more of our GDP than income taxes.
Conservatives and libertarians have long advocated that the answer to Social
Security’s ailments can be found in the creation of privatized equity accounts
which would allow workers to boost their returns far above the level of inflation
and, thereby, firmly secure their futures. A reliable future is something
that FDR’s program never ensured, since it could be discontinued or modified
at any time and decades of political cowardice has worsened its inherent
The rationale behind individual equity accounts is sound but not politically
viable due to the stance of the Democratic Party. Donald Luskin explains the left’s near-religious attachment to the status quo and their reluctance to make any alterations whatsoever:
“For liberals, Social Security is a fortress of New Deal collectivism and
paternalism that must be held fast against conservative assaults, at all
costs. What liberals fear is that, through private accounts, system beneficiaries
would become real stakeholders in America and captains of their own financial
fates — not wards of the state, dependent on the whims of incumbent legislators
to tell them what benefits they will be permitted to receive.”
The Democrats are vested in nothing ever changing. The inevitable tax
increases which, barring reform, will be needed to keep the checks cashing
will only increase their popularity among the rank and file. Remember,
these people think taxes ARE charity and that a dollar given to the government
is 100 cents spent on soup at a food kitchen (rather than a dollar that disappears
after being audited). Clearly, free market solutions are anathema to
the liberal intelligentsia.
Private accounts that invest in corporate stocks would also undermine a good
deal of their spin rhetoric. Anti-corporate speeches are currently
playing quite well in certain blue shaded areas of the country, and whether
these attacks are specific, as with outsourcing, or vague, like when Al Gore
promised four years ago to protect us from the powerful forces standing against
us, doesn’t seem to matter.
Sadly, even though class warfare is deleterious for everyone, the Democrats
will continue to vilify corporations because it is their nature and failure
to do so could cause them to lose votes among the permanently resentful.
That’s why some opulent Democratic leaders, who are occasionally veterans
of Wall Street, pretend that the stock market is not a source of wealth but
instead an unstable pyramid scheme. With the Tyco and Enron scandals,
along with the recent Martha Stewart trial, the left now has considerable
populist fire power with which to oppose equity based solutions.
The real issue with Social Security is discovering a partial solution that
will point us in the direction of solvency. As I see it, the most practicable
method of improving the boondoggle is to establish privatized accounts which
invest exclusively in the United States government and avoid any interactions
with corporations or the free market.
The account’s investment vehicle will be exclusively Treasury Bonds, and
the interest they generate will be placed directly into the accounts of all
workers. This will provide citizens with positive reinforcement as
they save their way to independence. The average enrollee will realize
an actual return higher than what the program garners today, and it will
be above the level of inflation as well (the yield for 10 year bonds is currently
just over 4%).
A modest and non-threatening amount, such as one half of one percent, should
be set aside at onset and enrollment should be applicable only to those who
are currently working. In order for this reform to have a chance at
becoming law, we must also guarantee that no current retirees will have any
of their benefits altered.
There will be no cutoff for contributions as there are at present.
If someone makes $200,000 a year then they should have the option of depositing
$1,000 into their escrow.
Another benefit of the plan is the lack of federal access to the account’s
principal and interest. What one saves is what one receives and all
accumulated funds will be released to the participant upon retirement.
Further, as a means to cut costs, statements from the accounts will be sent
out alongside the annual updates we presently receive.
The Democratic Party, of course, will oppose even this modest reform, but
they could not do so for long, as it would mean questioning the reliability
of the government– which is a god they hold dearer than all others.
The plan’s biggest dividend is that it takes away all argumentative ground
from the liberals. Would they dare call government debt a risky scheme?
Would they argue that obligations hidden in the morass of the general fund
are more secure than account balances people can access for themselves?
My solution is admittedly Bushian in its limited scope. Obviously it
does not solve most of Social Security’s financial problems, but it
does aim the program in a more logical direction. Furthermore, personal
accounts will separate workers from the government’s narcoleptic teat (which
is a tremendous victory in itself). It is hoped that through individual
enrollment, the average person will realize a more prosperous and enhanced
role in our wonderful American enterprise.
Bernard Chapin is a writer living in Chicago.
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