Liberty: -- Issues -- Privatize program now
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Privatize program now
by Mike Tanner
Social Security reform cannot be put off. In less than 15 years, the
national retirement program will begin to run a deficit, spending more
on benefits than it takes in through taxes. The IOUs in the Social
Security Trust Fund are merely a claim against future taxes, not real
assets that can be used to pay benefits. Overall, the system is more
than $26 trillion in debt.
It was President Clinton who laid out the very limited options for
fixing the problem: raise taxes, cut benefits or invest in the stock and
bond markets, which historically provide a higher rate of return.
Certainly, it is possible to raise taxes or cut benefits enough to prop
up the existing system for a little while longer. But the Social
Security payroll tax already is the biggest tax the average American
family pays. Do we really want our legacy to our children and
grandchildren to be the largest tax increase in American history?
Cutting benefits is no better an option. Already, younger workers can
expect a low, below-market return on their taxes. Benefit cuts only
would make a bad deal worse.
That leaves private investment as the only viable option. By allowing
younger workers to invest their Social Security taxes through private
individual accounts, we can:
Help restore Social Security to long-term solvency without having to
resort to massive tax increases.
Provide workers with higher benefits than Social Security otherwise
would be able to provide.
Create a system that treats women, minorities and young people more
Allow low-income workers to accumulate real, inheritable wealth for
the first time in their lives.
Give workers ownership of and control over their retirement funds.
Some people say that the current budget deficits make Social Security
reform, and, particularly, individual accounts, impossible. They point
to the "transition costs" of moving to individual accounts. Since
current taxes are used to pay current beneficiaries, allowing younger
workers to invest their taxes will require a replacement form of revenue
to protect current retirees. But given Social Security's unfunded
liabilities, the transition does not really represent a new cost. It is
just making explicit an already-implicit debt.
Of course, it would mean paying that debt now rather than later. It is
true, therefore, that reforming Social Security will increase short-term
budget deficits. But it will save trillions of dollars in the long term.
In many ways, it is like refinancing your mortgage. Sure, you have to
pay the points up front, but you save money in the long run.
Federal budget deficits are not a good thing. But letting current
deficits stand in the way of Social Security reform is to saddle our
children and grandchildren with a much bigger bill.
- The only freedom which deserves the name is that of pursuing our own
good in our own way, so long as we do not attempt to deprive others of
theirs, or to impede their efforts to obtain it. --John Stuart Mill
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