Cost of Privatizing Social Security

The 'cost of transition' is the latest buzz phrase bandied about by Democrats. Social Security was once referred to as 'the third rail' of politics. For non-New Yorkers this typical Eastcoast shorthand phrase needs explanation. New York Subways are electrically powered in three rails including a ground rail track. When an unfortunate victim, either accidently or deliberately, falls from a loading ramp and touches the third rail he is grounded and immediately fried. Such has happened to many reformers over the past half century. The opponents of change now have come to the hard reality that Americans want a discussion about a law passed before most of us were born. Social Security withholding takes 12.4% of all wage & salary earnings. There is no personal exemption, standard or itemized deduction. It is withheld on the first dollar of income. Thus on $20,000 of income it is $2480 the worker never sees. Contrary to popular belief the money is not held in a 'Trust Account', as the myth the New Deal lawmakers have perpetrated since 1936, the money is paid out instantaneously to others. But what does this transaction between the worker and the government do to government? It leaves the government with an unpaid debt. Herein is the structural flaw. Each $1 of Social Security Tax withheld from a workers paycheck is $1 added to the National Debt. In fact, it can be argued Social Security is the single largest component of the National Debt. Most people think of the National Debt like home mortgage, you work hard, save money and eventually reduce the amount of money you owe. The problem is the debt grows 12.4% for each 1 minute of labor performed, multiplied by 130 million workers. In other words, the more we work, the harder we work, the more people employed, the greater the National Debt becomes. Here's the hard truth in a conclusion: we cannot 'payoff' the National Debt by labor, i.e. working. The growth of debt is tied to labor by the withholding tax. Milton Friedman in his 1980 treaties 'Free to Choose' gave us the simple solution to 'transition costs' in privitizing Social Security, and reducing the astronomical growth of government debt. Repeal the withholding tax (or at least allow workers to redirect a portion of their withholding into private managed accounts) and secondly float a bond issue to payoff existing beneficiaries. Repealing the withholding tax would have the immediate affect of 'capping' the existing debt, rather than its untrammelled growth tied to how productive we are. The existing debt, or 'transition costs' would immediately become finite, and then could be paid off as government has always financed its debts. Herein is the rub, the proponents of the status quo are for expanding debt, as more & more workers join the work force each year, and as all workers work harder. Their view is one of infinite exploding debt. By 'capping' the debt, to use more Washington & Eastcoast shorthand, the largest cause of out of control debt suddenly becomes a fixed number. The differance is between fixed transition costs and limitless debt than can never be paid off by working.

Slight correction: "Each $1 of Social Security Tax withheld from a workers paycheck is $1 added to the National Debt."

It's TWO dollars, because the employer kicks in another $1 each time. As an employer of 500 people, I see this every week and cringe as payroll goes out. The politicians aren't clueless - the "Third Rail" is their jobs - and the pain of having to fess up to the "Great Lie" they've been selling all these years. One only has to look to South America, Argentina and Chile to see how private retirement accounts can make even the poorest folks rich over time. Their average growth runs 10 to 15 TIMES that of a similar (US) SS account. That folks, is a tremendous crime.

JMNSHO - YMMV

And let us not forget what happens to any money left over after paying those who are due payments that month. It is used to purchase treasuries (debt) and the funds are deposited into the general fund where it is spent by the politicians.

The biggest problem with fixing social security is weaning our elected officials off of that money.

The term transition cost also means another thing.That is, those who are opposed to any change in the system(libs who wish to demagog the issue for as far as the eye can see)are tacitly admitting that the current system is untenable and defective.
If the social security system was a good plan, than given the option people would stay in it.The cost, as it were comes from covering the loss to the fund as people "opt out".This is because most my age realize that social security is a failing idea.

Perhaps it was well intended at the start when it was unlikely a recipient would live much past the retirement age but thanks to the 60^s,LBJ and Nixon it has morphed into a dependency based and propagating program.
It is one of the poorest returns on investment ever contrived by man as the system has evolved.

It's structrual flaw was it was built as a Ponzi scheme and has always remained so. No employer could provide a pension plan to his employees based on cash transfers from working employees to former retires employees. The Law calls that fraud.

It certainly is now ,I`m not sure if originally it was a pyramid.I heard that when started the average life expectancy was 64.I don`t know if that is true I have not researched it.
If it is than it was a political smoke and mirrors trick by Roosevelt.
Either way as an Amway scam or as an insurance policy that was impossible to collect on, it was deceitful.

Nothing much has changed in the dem party in the last 60 or so years.

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