What Is Their Plan for Social Security?

Cato Institute ^ | July 28, 2006 | Michael D. Tanner

[Tolerance Sucks Rocks]

Michael Tanner is director of health and welfare studies at the Cato Institute and editor of Social Security and Its Discontents (2005).

At a press conference with fellow Democrats at the Statehouse on Monday night, Senator Robert Menendez attacked his Republican opponent, Thomas Kean, Jr., for secretly supporting President Bush's proposal for "privatizing" Social Security. Kean denied the charge and responded with a few of his own, but in swapping barbs, neither candidate gave us the slightest clue what they would do to solve the program's looming problems.

The facts are simple: Social Security will begin running a deficit in just 11 years. Of course, in theory, the Social Security Trust Fund will pay benefits until 2040. That's not much comfort to today's 33-year olds, who will face an automatic 26 percent cut in benefits unless the program is reformed before they retire. But even that figure is misleading, because the Trust Fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs.

Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2040. At that point, Social Security will have to rely solely on revenue from the payroll tax-but that revenue will not be sufficient to pay all promised benefits. Overall, the system's unfunded liabilities-the amount it has promised beyond what it can actually pay-now total $15.3 trillion. Yes, that's trillion with a 'T.' Setting aside some technical changes in how future obligations are calculated, that's $550 billion worse than the figures for 2005. In other words, by failing to act last year, Congress handed our children and grandchildren a bill for another $550 billion.

Moreover, Social Security taxes are already so high, relative to benefits, that Social Security has quite simply become a bad deal for younger workers, providing a low, below-market rate-of-return. In fact, many young workers will end up paying more in taxes than they receive in benefits. They will actually lose money under the program.

But the single most important problem with the current Social Security system is that workers have no ownership of their benefits. In Flemming v. Nestor, almost 50 years ago, the Supreme Court ruled that workers have no legally binding contractual or property rights to their Social Security benefits, and those benefits can be changed, cut, or even revoked at any time. This leaves workers totally dependent on the good will of 535 politicians to provide for their retirement needs. And, because workers don't own their benefits, their benefits are not inheritable. This is particularly disadvantageous for African-Americans and other groups with shorter life expectancies.

It doesn't have to be this way. Social Security reform was once a bipartisan issue. Democrats like Senators Bob Kerrey and Daniel Patrick Moynihan were outspoken in warning about the program's looming insolvency and calling for innovative approaches to fix it. The Democratic Leadership Council and its think tank arm, the Progressive Policy Institute, explored ideas, including personal accounts. Congressmen like Charlie Stenholm reached across the aisle in search of compromise. Even President Clinton led a national debate to "Save Social Security First."

But ever since President Bush called for reforming the nation's troubled retirement program, congressional Democrats have had only one answer: No. No to personal accounts. No to changes in benefits. No to offering a reform plan of their own. No to any discussion or negotiation.

At the same time, Republicans have scurried for cover -apparently in fear of offending AARP and other special interests-running from positions they know are right. The result has been a choice between Democratic obstructionism and Republican cowardice.

The options available to fix Social Security are limited. In fact, it was President Clinton who pointed out the available options: raise taxes, cut benefits, or invest privately. When one opposes personal accounts, he is obligated to tell us exactly which benefits should be cut or which taxes should be raised.

Inaction is not an option. Social Security's problems are not going to go away. The gap between its promises and what it can pay gets bigger with each passing year. The rate of return for younger workers continues to decline. And workers still have no ownership of their money.

Almost everyone agrees that Social Security reform is not going to happen this year. It's an election year, after all-no time to rock the boat. But election years also allow people to have their say. No candidates, whether Republican or Democrat, should be able to avoid telling us exactly where they stand on Social Security. Do they favor raising taxes? Do they want to cut benefits? Are they willing to give workers more choice, ownership and control over their retirement funds?

Its time for voters to ask. And it's time for candidates to answer.

This article appeared in the Newark Star-Ledger on July 27, 2006.

[gth833s]

Yes,

but you probably have invested money for your retirement. While much of the united states did not think about it that far in advance. Personally I think I am going to start retirement fund during the next semester that I intern.

[Nick Danger]

My plan for Social Security is to default on it. They're going to default on it anyway, so let's get it over with.

The whole idea of taxing the generation that is raising the nation's young, and transferring that money to the nation's oldest people, is morally reprehensible and disgusting. Beggaring the young for the benefit of the old is the dumbest idea in human history.

Only "The Greatest Generation" could have thought up such a thing. Now that they're not around to defend it anymore, we can get rid of it. They got theirs, which was their point. Everyone since is going to get screwed on the deal. Why keep it?

[Tolerance Sucks Rocks]

Personally I think I am going to start retirement fund during the next semester that I intern.

A wise choice. Since your profile reveals you to be a college student, I'm assuming you'd be in your late teens or early 20s. At that age, I don't see a problem with starting a 401(k) or Roth IRA and investing your contributions quite aggressively (that's how I'm doing it, and I'm 39).

Of course, the best route would be to consult a financial manager, but I suspect he'd agree with me for the most part. :-)

[edzo4]

I suggest we suggest investing some of the SSI into big oil, then watch the liberals heads explode...

[EagleUSA]

No it won't run a deficit. The socialists will just raise the SS taxes on our working children like they always do when they spend all the money they have...the government SPENDS EVERY CENT of SS taxes collected EACH YEAR regardless of the fact they collect more than they need to pay out --- so there is no SS reserve of ANY kind. It is a tax, pure and simple collected every year and spent every year, like the drunken (on our money) socialists that they are...

[Brilliant]

Their plan is to let it go bankrupt.

[Alberta's Child]

At some point the whole concept of "payroll taxes" is going to disappear anyway, and we'll be left with two different types of financially astute people: 1) those who work for cash, and 2) those who figure out that earning dividends instead of getting a paycheck is a better way to earn a living.

[Sergio]

Save for later reading.

[speekinout]

What you propose is similar to what corporations converting from defined benefit retirement plans to defined contribution plans have done.
The sob stories are legion, as are the law suits. And people of all ages complain about being "discriminated against" (that's a politically correct way to whine).

I think that people who have been in a defined contribution retirement plan for some years (maybe 10 or so) will very much like to convert their SS to a private plan. I don't know if that will be enough to get the changes implemented before SS is in a real crisis, though.

[freedumb2003]

Anyone under 50 who thinks they will ever see a dime of SSI is living in a dream world.

The answer is that it collapse under its own weight but almost no one currently in Congress will have to worry about it at that time.

[stopem]

If they quit giving away the money and used it for its original intent it would have been fine. Instead they want to give it away to foreigners and people who didn't pay into it to begin with.

[EagleUSA]

Instead they want to give it away to foreigners and people who didn't pay into it to begin with.
------
And worse than that, they have robbed the monies for things other than social welfare. The U.S. taxpayer has been flat out robbed by Washington. That should be clear by now.

[Belasarius]

I just argued this till I was near unconcious over on the AARP forum. There is a guy over there neactuary who listed a few major points. We aren't on the same page at all over whether or not it's right to treat people that way.

Workers contributing is about 3. It's going to 2.1 and so we know exactly how bad its going to be.
They want to raise the rate (wrong word) back up to 90% so you (the rich) get socked on nearly every dollar you make.
They want to shift the proceeds from the inheritance tax to support social security. They would raise the exlusion to about 3.5 million. Voila, all payed for.....

[Belasarius]

Oh yeah, but I discovered in my debate on AARP that the main thing is the dems are really, really proud of Social Security. They think of it as the most successful government program ever. We are not on the same planet with regards to what we value as important. The idea that we would dump it in a heartbeat is galling to them.

[redlegplanner]

Interesting as this week I helped a co-worker figure out what the opportunity cost of the socialist mandated Social Security tax has been on him. Bottom line, if allowed to invest the employee and employer taxes, this ex-military, 58 year old, current Gov't Service man would have ~450k now to continue to invest and eventually live on. Best of all, if he chose to, he could pass some of the principle down to his sons. Instead he is looking at a marginal payback due to minimal rate of return, failed promises, and a probably shortened lifespan (stress, too many jumps). This program is immoral. At best it should be optional.

[goldstategop]

Agreed. We have three choices: raise taxes, cut benefits or privatize Social Security. Any politician who is against private retirement account ownership should get in front of the American people and spell out what taxes need to be raised or what benefits should be cut. All we're getting from the Democrats on the issue is demagoguery and from the Republicans we're getting fear.

(Go Israel, Go! Slap 'Em Down Hezbullies.)

[taxed2death]

"They" have a plan. The plan is to legalize all the illegals....and implement the "SS Normalization" plan thus increasing the numbers of suckers paying into this system and staving off a disaster for at least another two generations.