The current Social Security system is actuarially bankrupt and offers a meager retirement income compared with the amount of taxes workers are required to pay. Allowing workers to shift payroll taxes to personal retirement accounts is the only way to solve these two crises simultaneously. Many politicians and interest groups, however, have a vested interest in protecting the status quo. This leads them to make assertions that are either baseless or irrelevant:
Assertion #1:
"Social Security is financially sound, with tens of billions of dollars in surplus annual revenue." Fact: Social Security's 2014-2075 shortfall, after adjusting for inflation, will be as much as $20 trillion--over five times greater than the national debt.
Assertion #2:
"This is no crisis since Social Security has a big cash reserve sitting in a trust fund." Fact: The Social Security trust fund is not a savings account. It consists of IOUs that, when redeemed as the baby-boom generation retires, will impose a larger tax burden on tomorrow's workers.
Assertion #3:
"We can save Social Security by putting the budget surplus in the trust fund." Fact: Adding more IOUs to the trust fund will have no impact on Social Security's unfunded liability and will do nothing to reform the program.
Assertion #4:
"The Social Security system's long-term financial problems can be solved with very modest changes." Fact: Elimination of Social Security's long-term deficit would require a 50 percent increase in taxes, a 33 percent reduction in promised benefits, or a combination of both.
Assertion #5:
"A private system may be theoretically better, but the transition costs of ending the current pay-as-you-go Social Security system would be prohibitive." Fact: Reform will save Americans trillions of dollars, since the transition cost of shifting to personal accounts would be far less than the $19.8 trillion transition cost of bailing out the current system.
Assertion #6:
"Social Security's financial woes could be solved by raising the retirement age." Fact: Raising the retirement age to 70 or 75 would make people pay more for fewer benefits and would create particular hardships for those with physically demanding jobs.
Assertion #7:
"Faster economic growth will solve Social Security's financial problems." Fact: Better economic performance does not do much for Social Security because higher wages automatically result in higher benefits.
Assertion #8:
"Increased immigration can fix Social Security's demographic imbalance." Fact: Bringing more workers into the system is like trying to keep a Ponzi scheme alive with new victims.
Assertion #9:
"Social Security's deficit could be reduced by having the government invest in the stock market." Fact: Letting politicians invest Social Security funds is an open invitation to financial mismanagement and politically driven investment decisions.
Assertion #10:
"Changing the consumer price index could save Social Security a lot of money." Fact: Artificially changing the CPI would debase the integrity of government statistics and be a back-door way to force workers to pay more while reducing benefits to retirees.
Assertion #11:
"Reducing or eliminating retirement benefits for upper-income seniors would fix Social Security." Fact: Means-testing would selectively punish those who saved and invested during their working years, and also would require penalizing seniors who have incomes as low as $40,000 in order to have any noticeable impact on Social Security's shaky finances.
Assertion #12:
"Individual accounts will be more costly to administer than the low-cost Social Security system." Fact: The returns available from private investments are far larger than the returns available from Social Security--even after subtracting the tiny fraction of account balances that would be used to pay administrative costs.
Assertion #13:
"Social Security redistributes money from some types of families to others, so privatization would mean less retirement income for groups such as low-income, single-earner couples." Fact: All demographic groups would enjoy more retirement income if they were allowed to have personal accounts. Moreover, those who are disadvantaged by the current system, such as African-Americans, would reap large benefits.
Assertion #14:
"Allowing workers to shift some of their payroll taxes into personal accounts will harm the disability and survivors insurance components of Social Security." Fact: Reform proposals would affect only the retirement portion of Social Security.
Assertion #15:
"Creating personal retirement accounts is an untested concept with great risks." Fact: About two dozen countries around the world have privatized their retirement systems, either fully or partially, and the results have been universally successful.
Assertion #16:
"Workers should not `gamble' their retirement security on the stock market, especially since a crash could destroy their savings." Fact: Long-term investing is very safe and certainly is much more prudent and rewarding than being trapped in an unstable pay-as-you-go system that is subject to political manipulation.
Assertion #17:
"Personal accounts would benefit only the rich." Fact: Lower-income and middle-income workers are the ones who depend on Social Security and therefore have the most to gain if the program is modernized.
Assertion #18:
"Average-income and lower-income workers are financially naïve and would not be able to invest their own money properly." Fact: This demeaning claim is irrelevant, since personal retirement accounts would be professionally managed.
Daniel J. Mitchell, Ph.D., is McKenna Senior Fellow in Political Economy at The Heritage Foundation.
Full Text
Twitter
Facebook
RSS Feeds