Thursday, February 24, 2005
Why Not Personal Retirement Choice?
Social Security reform is a big issue today and hiding in wishful thinking doesn't solve any problems. So let's face up to and understand the basic hard facts.
While government agencies (SSA Trustees, SSA Actuaries and CBO) may differ in some details as they try to predict future trends, there does seem to be agreement on Social Security fundamentals. Today the FICA tax takes in more than it pays out, but in about 13 years that tax will be less than the benefits to be paid out, causing a draw-down from the SS Trust Fund. In another couple of decades (around 2040-2045), the Trust fund will be exhausted and incoming taxes will only be able pay about 75 percent of expected benefits. Then, under current law, the SSA must either raise taxes or cut benefits. We could solve the problem more gradually by raising taxes from 12.4 percent to 18 percent or by cutting benefits by one-third, or, over the longer run, by borrowing several trillion dollars.
The problem is caused by a combination of today's PayGo Structure (taxes in, benefits out, left-over surplus to Trust Fund) and national longevity trends (more retirees living much longer, with a coming surge of boomer retirees, while the number of workers to pay the taxes keeps shrinking). Soon there will be only two workers to pay for each retiree; down from 3-1 today and 16-1 only 50 years ago. The problem becomes urgent in 13 years not 40 years because there are no real assets in the Trust Fund to pay benefits. Unlike real assets in a personal account, the Fund only holds government promises to pay itself for all the accumulated surplus tax dollars that it has already spent on its day-day operating expenses. The only way it can pay those benefits, starting in 13 years, is to raise more taxes or to borrow more funds then. Raising taxes to build a surplus has not and will not work - it's really just a tax me now and tax me later scheme.
What does work is real personal accounts for individuals; accounts that are invested to harness the power of compound interest in real growing assets that you can spend on retirement or leave to your heirs if you die before retirement. That's what all federal and most university employees have had for years under very successful plans. President Bush proposes to offer the choice of those accounts to all younger workers as part of a revised Social Security program that also continues to pay current and near retirees their promised benefits - promises that can not be kept under the current system. That's not just another patch-up, it's real Social Security Rejuvenation for the 21st Century.
So why the opposition to letting people make their own choices about their money and their future? Has the "Anybody but Bush" theme become the "Anything but Personal Retirement Choice" theme?
(The above is provided here for reference. It was also published as a letter to editor in the Susquehanna County Independent and the Susquehanna County Transcript newspapers on 23 February 2005.)
While government agencies (SSA Trustees, SSA Actuaries and CBO) may differ in some details as they try to predict future trends, there does seem to be agreement on Social Security fundamentals. Today the FICA tax takes in more than it pays out, but in about 13 years that tax will be less than the benefits to be paid out, causing a draw-down from the SS Trust Fund. In another couple of decades (around 2040-2045), the Trust fund will be exhausted and incoming taxes will only be able pay about 75 percent of expected benefits. Then, under current law, the SSA must either raise taxes or cut benefits. We could solve the problem more gradually by raising taxes from 12.4 percent to 18 percent or by cutting benefits by one-third, or, over the longer run, by borrowing several trillion dollars.
The problem is caused by a combination of today's PayGo Structure (taxes in, benefits out, left-over surplus to Trust Fund) and national longevity trends (more retirees living much longer, with a coming surge of boomer retirees, while the number of workers to pay the taxes keeps shrinking). Soon there will be only two workers to pay for each retiree; down from 3-1 today and 16-1 only 50 years ago. The problem becomes urgent in 13 years not 40 years because there are no real assets in the Trust Fund to pay benefits. Unlike real assets in a personal account, the Fund only holds government promises to pay itself for all the accumulated surplus tax dollars that it has already spent on its day-day operating expenses. The only way it can pay those benefits, starting in 13 years, is to raise more taxes or to borrow more funds then. Raising taxes to build a surplus has not and will not work - it's really just a tax me now and tax me later scheme.
What does work is real personal accounts for individuals; accounts that are invested to harness the power of compound interest in real growing assets that you can spend on retirement or leave to your heirs if you die before retirement. That's what all federal and most university employees have had for years under very successful plans. President Bush proposes to offer the choice of those accounts to all younger workers as part of a revised Social Security program that also continues to pay current and near retirees their promised benefits - promises that can not be kept under the current system. That's not just another patch-up, it's real Social Security Rejuvenation for the 21st Century.
So why the opposition to letting people make their own choices about their money and their future? Has the "Anybody but Bush" theme become the "Anything but Personal Retirement Choice" theme?
(The above is provided here for reference. It was also published as a letter to editor in the Susquehanna County Independent and the Susquehanna County Transcript newspapers on 23 February 2005.)
