Social Security Reform... The system needs to be fixed
May 22, 2005
Recently, your columnists entered into a dialogue of substance on a matter of considerable importance. We are happy to share that dialogue with you.
M. A. B. Few people seriously dispute that Social Security is in need of reform. The surge in the near future from the baby boom generation will cause a surge in benefits payments from the system, and, we are told, that in just 15 years the system will be paying out more in benefits than it collects in taxes. The System needs to be fixed. Berne Brannon from the Cato Institute points out that by 2042 the so called Trust Fund will be exhausted and Social Security will only be able to pay 73 percent of promised benefits to retirees.
R. L. H. In 1950, there were 16 workers to support every one beneficiary of Social Security. Today, there are only 3.3 workers supporting every beneficiary. In 2008 baby boomers will begin to retire. And over the next few decades, people will be living longer and the numbers of benefit recipients are scheduled to increase dramatically. By the time today's youngest workers turn 65, there will only be only 2 workers supporting each beneficiary. And 13 years from now, in 2018, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes. Thus, as one calculates, by the year 2027, the government will somehow need to come up an extra $200 billion a year to keep the system afloat. In short, reform of the system is a crucial; it is particularly critical if our children and grandchildren are to be beneficiaries of the system. To keep the promise of Social Security alive for future generations, we need to fix it now. We cannot fall into the easy way out of doing too little too late. President Bush recently suggested two changes that would begin to address the problem: First, he wants to update the Social Security benefits schedule and, secondly, allow workers, if they choose, to invest in Personal Retirements accounts.
M.A. B. Any reform which does not include private accounts will be obsolete within a decade. The Government controls a retirement system which is unsustainable at the present and future times. To create a system with long term solvency, and ownership, Personal accounts must be embraced. Poor Americans live shorter lives than rich ones, and under Personal Accounts that wealth could be passed on to break the yoke of poverty. It would encourage personal control over earnings, retirement, and investments, removing the government from ones life. These accounts would be sound retirement accounts, such as conservative index funds or bonds. These are the same Pensions state, county and local retiree's have, and have proved to yield excellent returns, between 4 and 6 percent, well above inflation, and even further above Social Security's meager 1% rate of return.
R. L. H. Even more so, The Administration wants to provide a means whereby workers could, if they so choose, divert about a third of their share of Social Security taxes into personal retirement accounts. Individual would get to keep everything they set aside in their personal accounts, plus the increased rate of return they'll realize on their investment. It is the individual's own account or that of the individual's estate. And thus, if this were approved, younger workers would be able to divert part of their Social Security payroll tax contributions into personal investment accounts which would allow the investment to grow more than if it has remained in the traditional system.
CONCLUSION: Michael Tanner stated it well in his concluding brief for Social Security Reform by the Cato Institute. "For those who are wealthy, little differences will exist between systems. But under the present system, this provides a means by which every individual at every level of our civilization could participate in the profit generating engine known as the American Economy." As stated above, the proposal itself could make every worker into a capitalist, sharing the means that has created the wealthiest society in the history of the human experience.
Those who are in poverty would have an account that would be transferable to an heir, reducing the likelihood of the heir living in poverty. Social Security's origins were to reduce poverty, and if these reforms are to take place and allow for inheritability and individual control, it could achieve that goal even more greatly.
We expect this plan to restore Social Security to long-term and sustainable solvency and to do so at a cost that is less than the cost of simply propping up the existing program. And it would do far more than that. Younger workers who chose the individual account option would receive benefits substantially higher than those that could be paid under traditional Social Security. At the same time, the plan would treat women and minorities more fairly and allow low-income workers to accumulate real wealth. Most important, this proposal would reduce Americans' reliance on government and give individuals greater ownership of wealth, as well as responsibility for and control over their own lives. It would be a profound and significant increase in individual liberty. We couldn't agree more, FROM OUR PERSPECTIVE.