Social Security: The Privatization Shell Game
By David Henderson
Bryan posits a policy in 2005, had Bush succeeded beyond his wildest dreams, of privatizing Social Security. Bryan gives an argument against that. But there’s a more basic argument that I made on a late 1990s talk show with Roger Hedgecock where the other guest was Representative Mark Sanford of South Carolina. Hedgecock, who now has a national talk show, had a show in San Diego. The way I put it then was that this kind of privatization is a shell game that ends up actually reducing economic freedom even if it works.
Why? Look at how Bryan worded it:
1. Workers are free to divert 100% of their future payroll tax into private accounts.
2. Workers are free to immediately ask for the present value of their future SS checks, as long as they put their money in reputable investments.
So the government is going to have to come up with revenues to pay two groups of workers: those who want the present value of their future SS checks and those who don’t want it but, instead, want to get the checks. The government hasn’t come up with any new revenues to do this. So what must it do? Raise some other taxes and not just a little, but a lot. Much of the future payroll tax will be off limits because of point #1: Workers will divert it into private accounts.
So what just happened here? The government imposed a new forced saving scheme. It, in effect, said to workers, “We were already taking X from you. Now we’re going to let you use X the way you want, within limits–don’t dare buy a refrigerator or pay for life-saving surgery. Oh, and we’re going to have to take another almost-X to pay SS claimants.” The government didn’t increase economic freedom because it still needs to raise other taxes to pay for future SS promises. It just sliced off some current freedom.
Interestingly, when I made this point, Mark Sanford didn’t object and he stayed friendly in the interview. In my experience with Congressmen, once you disagree with them in public on one of their most passionately held ideas, the knives comes out. I was so impressed with him that when I saw him running for governor in South Carolina and promising to get rid of the income tax over (if I recall correctly) 20 years, I sent him money.