By Mark for the TIB Network:
FDR intended Social Security to be a safety net for people who lived beyond the standard age of working/average life expectancy, namely those over 62. He never intended it to become what it has: a bloated, corrupt Ponzi scheme which is leaching away the hard earned money of more workers every day, and which will be bankrupt in the next 50 years. FDR:"I believe the funds necessary to provide this insurance should be raised by contribution, rather tan an increase in general taxation."
We have seen how this program for overaged people who lived past the standard life expectancy has been sold to Americans as a retirement program, which it was never intended to be. People have been led to believe that this money will be enough for them to retire on, that they will get back their money that they put in. This is incorrect. The money retirees are receiving is not their money. It is my money that I am putting in. It is my Dad's money he is putting in. It is not my grandpa's money.
Americans and employers each pay mandatory 6.2% payroll tax. Every penny is spent by the federal government. For example, people in their 20s, like me, some of my Social Security tax will fund the National Endowment for the Arts, the Corporation for Public Broadcasting, and several other programs, not going into a trust fund, as it has been portrayed. According to most reasonable estimates, when I retire, there will be no money for my retirement that, according to the Left today, that the government was taking care of for me. Sadly, the government has taken on the opinion (and wrong it is) of liberal professor Barry Schwartz, who said, "The payroll tax is not 'your' money, it is our money."(New York Times, January 5)
Look, Social Security is broken. Clinton and Gore acknowledged that during their tenure in the 1990s. We have leading Congressional Democrats, including Senate MINORITY leader Harry Reid on record as saying there is a crisis, and that personal accounts are a reasonable solution. Therefore, it does not matter what their obfuscations are now. According the the very trustees of Social Security, by 2042 its debt obligation to beneficiaries will exceed its claim on the Treasury.
The President and some members of Congress have advocated giving Social Security money back to the workers through Personal Savings Accounts (PSAs). Workers would be allowed to put some of their payroll taxes into accounts that would accrue interest (at a better rate than Social Security, and these accounts would be heavily regulated).
Liberals have bemoaned that what will happen is that we will really bankrupt Social Security. They cite so-called "Transition Costs" of when workers are allowed to invest part of Social Security taxes into PSAs rather than loan the money to the goverment (as they currently do) to pay the retirement of current retirees and other projects. So, instead of our money being put into the government piggy bank, it would go into ours. This program, as it currently exists, cannot stand.
How Did We Get to This Point?
Mismanagement and misleading by the government, pure and simple. Misleading people to think that this program was meant to be a retirement account for all, when that is not what it was intended for. Misleading people through the decades several times that the system has been "fixed" for all time. Mismanagement in terms of the current workers fund retirement by making contributions via payroll taxes. In exchange, the government promises to pay the worker when he/she retires, precisely defined benefits defined by a formula by law.
The amount would be a surplus if it were properly invested. However, it is not. The federal government borrows my tax payments to pay for the retirees of today (Me, Matt and Doug essentially pay for my grandfather's retirement). This would be different if this debt were like typical government debt, but it is not. The amount owed to workers is not factored into the issuance of bond or certificate to the workers. It is not recorded as debt on the government's balance sheet. It is shadow debt. However, it is debt, and without action, there will be a reckoning.
The Fuzzy Transition Costs
There are no real transition costs, people. This is another term meant to scare people. What the Left calls transition costs is the crunch that occurs when the workers can invest in PSA's rather than loan the government to pay grandpa's retirement, the NEA, PBS, etc. Oh no the pig of government may have to diet!!!
But here's the thing...the cash flow isue arises because actually the government would be borrowing less!! Every dollar invested in PSAS would be a dollar less the government owes, reducing debt.
So, How Do We Fund the Crunch?
According to Lawrence Hunter of ipi.org, Congress has THREE options: 1)refinance old (undocumented) debt through bonds. 2)It can actually reduce spending to use freed up cash to repay the debt, or 3) it can increase taxes. I don't like option 3, and getting government to curtail spending is nigh impossible, especially with many costs being fixed. Therefore, the best option is refinancing.
PSA holders would be required to loan the government whatever funds are needed to pay current Social Security benefits that would have been covered by the PSA holder's payroll tax. The government would issue Treasury Insured Protected Securities (TIPS), which are interest bearing long term federal bonds backed by the full faith and credit of the US, as opposed to shadow debt. And, there are no selling restrictions. Some would say this would damage the bond market, however the market is already aware and the costs are already reflected in the current price of federal bonds. Since you are refinancing an already existing debt, no increase in federal indebtedness occures, ie, no 'transition costs.' With a dedication to decreasing government outlays, this plan will work and make Social Security solvent in perpetuity.
How Do We Know?
But Mark, how do you know this? There are real world examples. As noted elsewhere on WMD, the nation of Chile has a very successful PSA program. So does Galveston County, Texas. However, the most striking example comes from our own history.
After the American Revolution, the infant new government was mired in debt. We were borrowing money from England, Holland, and France (yes, they did have a use back then) just to stay afloat. We also owed money to creditors who bought continental war bonds, which many considered to be worthless after the war.
The new government had no revenue stream to pay its debt. There were no income taxes, etc. No one expected the new government to pay off its debts.
With the new government under the Constitution, replacing the one under the Articles of Confederation that incurred the debt, the US could have taken the easy way out and repudiated its debt as part of a previous government. However, the Founders wanted to honor their commitments.
Enter Alexander Hamilton, Secretary of the Treasury. He said we should pay off the debt at face value. How? To refund the debt, Congres issued brand new long-term bonds backed by gold and the full faith and credit of the US. These bonds were used to buy up Pre-Revolution debt, including each individual state's debt. There were no transition costs and in fact Hamilton's actions and bookkeeping jumpstarted the US economy, leading to growth and prosperity for the young nation.
We've done it before when needed. We need it now, so let's be bold like Hamilton, not sheepish like others.
(Author's Note: This article borrows greatly from Lawrence Hunter's great essay at ipi.org...it includes charts and graphs, and a discussion of companion legislation to Social Security reform, the Sununu/Ryan Legislation....go check his great research out...see report 183 "Reducing Government Consumption, Increasing Personal Wealth: Limiting Federal Spending Growth Through Large Personal Retirement Accounts"; "Design Principles For Strengthening Social Security Through Personal Accounts" also is a good source....)
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