Thursday, April 28, 2005

A Social Security Solution

Okay, I've been hearing a LOT about Social Security lately, specifically about George W. Bush's desire to partially privatize it.

There are good and bad things about this idea. Each side wants everyone to pay attention to their arguments and ignore the other side's.

On the one hand, partially privatizing Social Security will help meet the financial demands of the system. Social Security is expensive. I mean, REALLY expensive. If I recall correctly, I think it's the second largest expenditure from our nation's budget. Although Democrats and Republicans argue over exactly when benefits will be cut, almost all do agree that the day will come in the not-too-distant future. The system is unsustainable as it is, and it will have to be changed one way or another at some point.

On the other, I have some serious concerns about privatizing Social Security. The first is short-term costs. You see, most people have the mistaken impression that Social Security is some sort of account that they have been paying into over the years, and when they turn 65, they'll get that money back. Oh how wrong that notion is! In fact, Social Security is a tax, just like any other. The money you pay in isn't being saved for you, it is mostly being paid out to the people who are currently on Social Security now. If Congress put an abrupt end to Social Security today so that you could save your own money for retirement (i.e. a full implementation of the privatization plan), the people who are currently on Social Security would suddenly be cut off after having paid into the system for all of their working years. The money that was funding their monthly check--your Social Security tax--is now going into your private retirement account! I can't tell you how frustrated I get when I explain that to people and they say something like, "They have to give me that money back, I've been paying it all these years!" No, they don't, and demanding your Social Security tax money back is about the same thing as demanding the money back that you have paid in income taxes and sales taxes over the years because it was your money. Maybe it was your money, but it's already been spent by your crazy Uncle Sam!

Also, I am concerned about the possibility of people losing their retirement money. Right now, in spite of how the system does need some sort of reform, Social Security is a guaranteed payment. You will get x dollars a month, no matter how smart or how stupid an investor you are. If you take away that guarantee, you will have people who invest their money badly, and come retirement age, they'll end up with a lot less money than they need to live. What happens to them? Do they get thrown out on the street, subsisting on welfare? Has that really improved our system or saved us anything? I think not.

I'm stymied about the first problem. The fact is that any money you take out of the Social Security system will have to be made up for somehow. Since I'm adamant that we shouldn't run a budget deficit (which we already are), government would have to find a way to cut spending elsewhere to come up with the dough. Government cutting spending? Ha!

The second problem is easily enough solved, though. The answer, I think, is simple. Let people invest their money, and when they get old enough to start taking it out, if the amount is less than Social Security would have been, subsidize the difference.

I know, conservatives are thinking, What!? Government pay people for making bad investments? Damn straight, for a couple of reasons. First of all, you're already taking away a benefit that they have been paying into all this time, and these people deserve some sort of assurance that they won't get screwed for it. Second of all, assuming that most people will not invest badly or the market tank too much, it will be very little money, way much less than the current second highest government expenditure.

Besides, it's a moot point, right? According to conservatives, everyone will make more money with private accounts, so under this type of plan, government will never have to actually spend any money on this, right? Right?

Well, that's my humble contribution to the solution. Now if we can figure out some way to pay for it without exploding the deficit (which Bush's plan doesn't address), then maybe we'll have a plan that I can sign on to.


At 4:50 PM, Anonymous Anonymous said...

From what I understand about the "plans" (yes, finger quotes), you're right; There will be short-term costs. However, the cost of doing nothing may be worse by an order of magnitude. I like the idea of private accounts, for the fact that it will be *voluntary*, and it will allow lower income families to have assets to will to their heirs (a point I don't think is getting through the media muck). True, it will be possible to lose money in private accounts, but this is why they are only to be offered to workers under 35 (?), because endless stats show that over a period of 30+ years, virtually no one would lose money invested in the private sector. Also, I believe the accounts would be very limited as to the levels of risk offered, like 3 or 4. As for SS being a guaranteed payment, that also is true. But, the return on investment (if you can really call it that) is so low that it barely outpaces inflation. The notion that many people rely on SS for their entire retirement is sickening, and while many people don't have the means to create REAL retirement accounts, far too many think that the government will take care of everything. Must truncate post. Later, TS

At 4:06 PM, Blogger Skippus said...

Valid points all, but my main idea is that there is a simple compromise in one of the main stuggles of contention in private accounts vs. the existing system. I see no reason why we can't have the best of both worlds, higher rates of return and guaranteed benefits.

And though I sort of glossed over it, those higher short-term costs really do concern me. Government spends too much money as it is. Figuring out how to pay for all of this is an entirely different ball of wax, though.


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