The best answer to reforming the Social Security system is to wean it off the government dole by allowing people to set aside at least some portion of their payroll taxes in personal investment accounts for their own retirement. This has been done with considerable success in Chile, where the CATO Institute reported that during the first 22 years of its program, the rate of return “was an astonishing 10 percent above inflation.” (“Economist Estelle James Examines Chile’s Pension System,” Feb. 25, 2005).
Private accounts have two big advantages:
» Individual accounts will belong to the people whose earnings are taxed to make contributions for their own retirement. Thus, any money remaining in their personal retirement accounts can be passed on to their heirs, instead of reverting to the government when they die. It’s a choice between creating and/or increasing workers’ personal estates vs. a dead loss.
» The rate of return on investment in individual Social Security accounts will be much greater than the 1 percent to 2 percent average annual yield that has historically been realized, which will ultimately translate into higher retirement income for participants.
A 2001 report by the CATO Institute, titled “America’s Social Security System: The Case for Privatizing,” noted: “A poll ... showed that 69 percent of Americans favored switching from the pay-as-you-go system to a fully funded, individually capitalized system. Only 11 percent said they opposed the idea. Interestingly, the major reason people cited for wanting to switch to a private system was not the higher rate of return they surely would capture under such a system ... but they pointed rather to the fact that they, and not the government, would be in control of their retirement income.”
The CATO Institute also reported that, by a margin of 2-to-1, America’s Generation Xers “think they are more likely to encounter UFO in their lifetime than they are to ever receive a single Social Security check. Even more remarkable, perhaps, was a poll taken ... by White House pollster Mark Penn for the Democratic Leadership Council, (which) found that 73 percent of Democrats favor being allowed to invest some or all their payroll tax in private accounts.”
Watching the endless analysis and debate about the need for reforming our Social Security system and how it should be done is, as the saying goes, a little like watching sausage being made. Not a very pleasant or appetizing sight.
What’s especially troubling is how politicians continue to mislead the public on this issue and get away with it.
In 2009, Social Security had an unfunded liability of $17.5 trillion and is currently projected to begin spending more than it takes in by 2017.
A recent Social Security trustees’ report provides the following facts about the program, among others:
» It is the largest government program in the world and accounts for 23 percent of the federal budget.
» Nearly 80 percent of taxpayers pay more in Social Security taxes than they do federal income taxes.
» The Social Security program cannot be sustained as it is presently constituted and cannot pay future benefits without burying future generations in debt.
» By the time today’s 37-year-olds become eligible for Social Security, their benefits will be reduced by 26 percent, unless the program is reformed.
» The Social Security Trust Fund has no investments or assets in it, other than IOUs from the federal government in the form of government bonds — that is, IOUs from the federal government, which has already used the money to fund its deficit budgets.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.
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