Social Security: Should we just allow the program to fizzle?

Suppose a big corporation forced its employees to set aside a certain percentage of their wages for retirement. Suppose it denied them the freedom to determine how these savings were invested.

Suppose, instead, the company itself borrowed everybody’s retirement savings to help pay for its own day-to-day operations. And suppose it paid a paltry amount of interest on the loans.

The corporation would be prosecuted, and somebody would end up in the pen.

Yet, that is the way the federal government treats us in its operation of the Social Security program.

Well, not exactly. It actually treats us worse.

It gives us no discretion to decide whether we wish to participate in the plan. It dictates to us that we must. If our employers don’t deduct our Social Security tax from our paychecks, they will be prosecuted.

Furthermore, the government not only forces our employers to withhold money from us and send it in to the Social Security program, it forces the employers to send in twice as much as they withhold from us. Employers are forced to pay in for us as much as we pay in for ourselves. Workers can see on their paycheck stubs how much of their pay was withheld from them and sent to Social Security, and all of us are aware of it. But many do not realize that our employers are forced to send in as much as we do.

And neither we nor our employer has any say in how that money is invested for our retirement.

Instead, the government immediately lends the money to itself. There is no money in the Social Security “trust fund.” There are only IOUs that the government has given to the fund. When the fund makes payments, it cashes in some IOUs.

So far, it has had enough IOUs to meet its obligations, and that is expected to continue for the next three or four decades. That is because those of us who are working are, with the help of our employers, paying in more than Social Security is sending out in benefits.

That will change.

That change has been delayed some — partly by raising the Social Security tax, partly by forcing workers to work longer before they become eligible for retirement benefits. Unless something drastic is done, however, when all the baby boomers retire there will be too few people working and paying Social Security taxes to pay for the benefits that will need to be paid out.

By the middle of this century, only two people will be working for every one person drawing Social Security. The Social Security taxes will be astronomical.

President Bush has discussed a plan for reforming Social Security to keep it afloat. He would allow workers to place a small fraction of their payments in an account that they themselves would administer. They could buy stocks, bonds, mutual funds or government notes. If they chose to do that, they likely could get a better return than what their Social Security money gets now.

There is considerable opposition to the plan. Some of it is partisan, some not. It is based mostly on these two considerations.

1 — The switchover would be expensive for a while, because less money would be going into the benefits program. Estimates are that this could cost one trillion to two trillion dollars over 10 years.

And 2 — There is reluctance to allow people to tie their investment to private markets.

But if Bush’s plan or some other one is not implemented, Social Security will eventually go broke. Whether you think that is a good thing or a bad thing depends on how devoted you are to the ideals of personal freedom and the right to save and invest as you wish. And it depends on whether you believe the government should hold itself to the same standards that it requires of private companies.

Published in Editorials on November 30, 2004 10:17 AM