The Way I See It
By Joseph C. Phillips

The Real Gamble With Social Security

In 2020, Social Security will begin to pay out more than it collects in taxes. In order to fund its obligation, the government will have to turn to the Social Security trust fund. Unfortunately, the only things sitting in the trust fund are IOU’s. As the Clinton Administration’s fiscal year 2000 budget explained: “They [IOU’s] do not consist of real economic assets that can be drawn down in the future to fund benefits.” Keeping Social Security solvent will require either an increase in taxes, a decrease in benefits or a combination of the two. There is one other option: establishing private investment accounts. The president favors the latter. If the Democratic response to the president’s state of the union address is any indication, they favor one of the former and are not above distortions of the truth and scaremongering in order to have their way.

In his Democratic rebuttal to the state of the union address, Senate Minority Leader Harry Reid stated: “…it's wrong to replace the guaranteed benefit that Americans have earned with a guaranteed benefit cut of forty percent or more. Make no mistake, that's exactly what President Bush is proposing."

Actually, that is not what the president is proposing. In fact, he is on record as stating that for those nearing retirement or already in retirement nothing will change. But why tell the truth when scaring the begeezes out of seniors is so much more fun?

Reid continued, "It's more like Social Security roulette. Democrats are all for giving Americans more of a say and more choices when it comes to their retirement savings. But that doesn't mean taking Social Security's guarantee and gambling with it.”

My question to the senator is, whose retirement savings is it? Under the current system, the money we citizens pay in social security taxes does not belong to us. The money belongs to the federal government to do with what they wish. Without ownership of our social security dollars, there can be no choice and no say. The only one offering a real choice is President Bush and those now demanding private accounts.

Furthermore, the only guarantee any of us has is a promise by the government. As demonstrated by Paul (a little increase in taxes, a little decrease in benefits and a little increase in the retirement age and social security is good for another 100 years) Krugman, that guarantee is subject to the whim of politicians and bureaucrats. The real gamble, it seems to me, is to leave the issue of social security benefits to the likes of Reid and the Democrats to solve.

The truth is that through higher returns, personal accounts will give workers more not fewer retirement benefits, which means a more secure retirement for today’s workers.

The average return on Social Security taxes is about two percent and that stellar return is expected to decline for younger workers. The Social Security administration estimates that a balanced portfolio of stocks and bonds could expect to earn returns of approximately 4.7 percent, net of administrative costs. According to the Cato Institute, “a worker earning $30,000 per year will pay roughly $120,000 in Social Security taxes over a 40 year working lifetime. A two percent return on that money yields Social Security benefits equivalent to $185,000. But a 4.6 percent return would yield $344,000, nearly twice as much.”

Democrats will no doubt continue to demonize and distort. That, however, will not change the fact that absent private accounts, younger workers and those just entering the workforce will face payroll taxes near 20%, reduced retirement benefits and increased government dependency. In the words of former President Clinton, that is, “horribly wrong and unfair to you and unfair to the future prospects of the United States.”

Send me your ways of seeing it at Josephcp@netlistings.com