Social Security Reform
I have been delving into the labyrinth of articles, opinions and statistics on social security, the predicted shortfall and the movement toward privatization. There is an opinion and a statistic to bolster every ideological view. I don't wish to rehash it all here, but just to give my own radical idea.
When I was in high school a representative of the Social Scurity administration came to speak to our class. He explained that social security was intended as a baseline of financial comfort for retirees, that it was a very bare minimum and that everyone should plan to supplement social security with additional savings and investment. I thought it was all very agreeable. Then he told us that current workers were paying in, not for their own benefits, but for those of current retirees. I thought that was wrong then and I think it is even more wrong now.
My children are paying a substantial portion of their earnings to social security in the form of payroll taxes. None of this money is for them. At the same time, they are told, Social Security benefits are likely to be severely compromised when it comes time for them to collect their own benefits. I can't think of another way to put it. This particular generation of workers is being victimized. Their earnings are literally being stolen. They seem a politically passive generation, but when they awaken their anger will be palpable. Resentment of their elders can't be far behind.
In the early 1980's Social Security looked like to was in jeopardy of failing eventually to meet its obligations, especially with the baby boom generation looking forward to retirement. The solution was to raise the payroll tax enough to create a surplus to be placed in a trust fund which would be available to pay out benefits when the time came. Unfortunately, instead of simply holding the money, it is invested in treasury bonds. The treasury bonds can be and have been spent by the government. Social security holds paper that is worthless unless congress decides to redeem it. Since the money is already spent the only way they can redeem it is to raise general taxes.
With a conservative government that fights taxes tooth and nail-- not necessarily a bad thing--it is unlikely that social security benefits will be paid from taxes. The resulting conundrum is that either payroll taxes will have to be increased or benefits cut. Either way the burden will fall upon the current generation of workers.
The President says that a partial privatization will be a solution. This is because with a better return on each account and the account actually owned by the individual, benefits will rise regardless of payroll taxes. Given long term market performance, it is likely, though not surely, true that the portion of savings devoted to private accounts will appreciate better than standard social security. However, since that portion of payroll taxes will not be available for current benefits their will be a shortfall unless further borrowing takes place. Who will service that debt? The current workers, of course.
In the long term, I do believe it would be far more equitable for each worker to be saving money for his/her own retirement. First because, it means the future is in his or her own hands and not at the whim of the ideology of the moment. Second, because population shifts will no longer affect the well being of the system. I believe it should be financed over three generations. Current retirees-myself included- should take a small cut. Current workers should have a small tax increase earmarked specifically and inviolably for the transition and finally the generation of their children should finish paying the debt.
Senator Patrick Moynihan had been co-chairman of the President Bush's (the first) social security commission which recommended the so called trust fund for Social Security. Before he died, he spoke in the most critical language of the use by congress of the social security trust fund to mask the annual budgetary deficits. (I could not find the quote, but I remember it). He even proposed raising general taxes to repay it, but was literally shouted down in the press and congress. I know my solution is not currently on the table, but only a complete transition can stop congress from continuing to use the payroll tax for purposes other than social security benefits.
Melvyn Polatchek
1:23:07 PM 
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