Categories:
Social Security
The plan contains four primary elements: a gradual reduction in future benefits; an increase in the payroll tax cap; an increase in the retirement age; and the establishment of personal retirement accounts. The plan puts great emphasis on fiscal responsibility – there are no transfers from general revenues to achieve sustainable solvency.
I am in favor of just about any compromise that includes personal accounts. My thinking is that once people see personal accounts in practice, their fears about personal accounts will diminish.
READER COMMENTS
Randy
Dec 15 2005 at 10:25am
The root cause of the problem is the idea that Social Security should not be a welfare program. The truth is that it has to be.
Why? Because upper income people don’t need to be forced to save, lower income people can’t afford to be forced to save, and the folks in the middle can be allowed to make up their own minds.
If we can get our minds around the fact that Social Security (and Medicare for that matter) must inevitably devolve into a pure welfare plan, then we can stop screwing around and start making it happen. The money currently collected is more than enough to provide a true safety net.
Barkley Rosser
Dec 15 2005 at 2:45pm
Maybe personal accounts are a wonderful idea for ideological reasons. However, there really is no need to do anything about social security. All the publicity from the Social Security Administration (SSA) Trustees about crises and the fund going into deficit and running out is wildly exaggerated hype.
What has been widely reported, the fund running a deficit as of 2017, or thereabouts, and running out of assets as of 2041, or thereabouts, reflects the so-called midrange projection by the SSA Trustees. This projection is based on ridiculously pessimistic assumptions, most importantly that GDP growth will very soon fall to about a 1.8% annual growth rate and that immigration into the US will come to a screeching halt.
The Trustees also made a forecast based on a continuation of our current growth rates and rates of immigration. Under that, the fund never runs a deficit, never. The SSA continues to lend money to the rest of the government forever. Indeed, this holds as long as immigration holds up and the growth rate manages to stay above 2.2%. There simply is no crisis and no need to do anything.
Of course, the medicare fund is already running a deficit, and that is before the new drug prescription spending kicks in.
James
Dec 15 2005 at 5:01pm
I suppose that some of the fear of personal accounts would go away when people get some experience with them, but only among those who fear personal accounts because they are worried about stock market crashes. For many, the real objection to personal accounts is that it takes away the government’s ability to lend the money to itself and spend it, or to take from some people in order to give to other people, practices that most opponents of private accounts really don’t want to see end.
ilsm
Dec 16 2005 at 9:53am
All the ‘publicity’ from the trustees border may be felonies.
18 USC 1001 is the criminal statute applied to government officials and employees which proscribes fraud and related misrepresentations.
The Trustees’ deliberate misrepresentations are not publicity they are crimnal offenses.
Fraud!
ilsm
Dec 16 2005 at 10:00am
When I first started working I paid into Federal Insurance Corporation of America (FICA).
We now call it social security. It was posed as a program to insure me against being destitute in my old age, or were I to be diasbled. That was a long time ago.
Now with free trade, open borders and other ruinous policies insensitive to the dignity of American workers the FICA moral hazard has been realized.
People have found the loophole and at 65 (or 62) apply for their old age income insurance and get it.
The alternative is to treat it like unemployment insurance for old folks who do not have a qualifying disability aside from attaining 62 YOA.
Barkley Rosser
Dec 16 2005 at 5:36pm
James,
So, you are of the “starve the beast” school. Fair enough, but not clear it is relevant to the social security issue. The issue is how large should be the minimal insurance guarantee part of retirement accounts. Private pensions have moved away from such a guarantee to defined contribution. Maybe that will do just great, maybe it will not.
The ultimate joke in the SSA debate is that those making the projections always assumed the same outcome for the possible future stock market performance, even as we had these widely varying possible outcomes for GDP and population growth. It is far from obvious that if the economy suddenly starts growing half as rapidly as it has that the stock market is going to do all that well in the future either. In short, the stock market will be a great alternative, as long as we don’t need it to be.
Daublin
Jan 8 2006 at 3:40pm
Randy, you argue convincingly that there should be a welfare program somewhere. But your argument does not say why Social Security has to be that program?
In fact, if you want SS-as-welfare (which is a legitimate option), you must really hate the current setup. Currently, the more you pay the more you get out, which is the opposite of a welfare program.
Barkley, why take the chance? If the economy goes great then no one has problems anyway. Can you even imagine how much charity and freebies will be floating around in a country 4-8 times as rich as we are now?
We are talking about a social *security* program, however. It ought to protect against predictable but unlikely bad things happening, such as the economy tanking. If the economy tanks, those at the bottom will suffer the most, yes, but that is all the more reason not to have the government obligated to keep on spending as if the economy were fine.
This brings me to my favorite reason to have personal accounts: they are clear and they provide clear, plausible options. They help avoid options where the government has a secret money tree. For example, in the above scenario, if the economy tanks, then yes, the personal accounts will have less in them than was hoped for. However, it will also be clear that increasing people’s accounts is going to require a tax hike. Also, the people in this unhappy scenario will be able to debate who should get money deposited. Almost certainly it will be people at the bottom who get bailed out, a la Welfare, and not a general hike of all personal accounts. The latter is a dumb idea, and personal accounts expose it as a dumb idea.
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