The current Social Security system is a very poor investment. A 25-year-old man is predicted to receive a –0.82 percent rate of return on his Social Security taxes.2
Low-income workers have extremely poor rates of return, and many low-income men will receive less in benefits than they paid in Social Security payroll taxes. A 25-year-old man living in Harlem would have a –4.46 percent rate of return on his Social Security taxes.3
Social Security will begin to spend more for benefits than it takes in from payroll taxes in 2018. In order to pay full promised benefits between then and 2070, each family in America would have to pay an additional $104,810 in taxes. In total, Social Security will need an additional $27 trillion (in constant 2004 dollars without inflation) over and above what it is scheduled to receive in payroll taxes.4
In order to repay the bonds in the trust fund, the government will have to collect about $5 trillion from taxpayers in addition to the payroll taxes they would otherwise pay between 2018 and 2042. That equals about an additional $33,000 per family.
The only way to pay benefits in our unreformed system would be to cut benefits by about 35 percent or to raise taxes by about 50 percent, according to the Social Security Administration.
Democrats–some Democrats–are busy bullying their special interest groups into opposing any Social Security reform. Why? Two reasons:
They want to deny the Republican president and Congress the glory of saving Social Security
They want the Social Security problem to become a real crisis so that a new system emerges that breeds even more dependence on the government.
Just look at Krugman, if you can. Nine years ago, he called for immediate action to save Social Security. He declared it a fiscal crises ready to destroy the American economy.
In 2010 … the boomers will begin to retire … The budgetary effects of this demographic tidal wave are straightforward to compute, but so huge as almost to defy comprehension … Yet if you think even briefly about what the Federal budget will look like in 20 years, you immediately realize that we are drifting inexorably toward crisis; if you think 30 years ahead, you wonder whether the Republic can be saved.
But just after the 2004 election, liberalism’s favorite “economist” scoffed at Bush’s mention of Social Security as a problem.
So does the Treasury report show a looming Social Security crisis? No.
Social Security’s problem, such as it is, is a matter of demography: as the population ages, the number of retirees will rise faster than the number of workers. As a result, benefit costs will rise by about 2 percent of G.D.P. over the next 30 years, and creep up slowly thereafter. By comparison, making the Bush tax cuts permanent would reduce revenue by at least 2.5 percent of G.D.P., starting now. That — combined with the fact that Social Security, unlike the rest of the federal government, is currently running a surplus — is why the Bush tax cuts are a much bigger problem for the nation’s fiscal future than the Social Security shortfall.
One who pays little attention to politics and legislation may assume that something happened between 1996 and 2004 that caused Krugman to change his mind. Well, some things did: the number of people in the workforce flattened and the number of people receiving Social Security benefits increased. The Social Security budget “surplus” that Krugman relies on is declining. Soon, according to the old Krugman in 2010, the number of retirees to workers will be so skewed as to endanger our entire economic system.
Now we find ourselves 9 years closer to the reckoning day, we have done nothing to fix the problem, and the liberals want to continue doing nothing.
The AARP, another liberal lock-step, knee-jerk group, has also changed its mind about Social Security reform.
In March 1998, the AARP published a study by Alicia Munnell and Pierluigi Balduzzi, both of Boston College. The pair conducted extensive research into the potential effects of investing Social Security trust fund assets in the stock market. Their conclusion?
The conclusion that emerges from this review is that investing the social security trust funds in equities is a feasible strategy that is desirable on economic grounds. It would improve the distribution of risks across generations. The young are currently exposed to little of the risk associated with equities since they have accumulated few assets to invest in the stock market.
But, as in a Ginsu Knives commercial, that’s not all:
The strength of the opposition means that whether or not to press forward with a proposal to invest the trust funds in equities comes down to a political judgment.
So what does the AARP say about investing Social Security money in stocks now that a Republican holds the White House? Take a wild friggin' guess. AARP CEO, William Novelli, wrote a policy statement this month:
Social Security is not in “crisis,” but the status quo cannot continue indefinitely either. We must shore up Social Security for the long term, so it will be there for all generations. The program’s trustees say benefits could begin to fall in 2042 if nothing is done to assure solvency. But a radical overhaul is not needed.
And guess who’s Novelli’s favorite blogger? Daily Kos, of course.
The AARP claims to support private retirement accounts, but only if they are subject to taxation and separate from Social Security. Organized Old People are just as dangerous to freedom as organized labor. When it comes to Social Security, as with so many other things, they lie to maintain their power.
What others say:
Becker on Becker-Posner makes a salient libertarian point:
So the really strong arguments for privatization are that they reduce the role of government in determining retirement ages and incomes, and improve government accounting of revenues and spending obligations.
Q and O ponders Paul Samuelson, liberalism’s old favorite economist.