Should Social Security be partly privatized? President Bush wants to let workers invest part of their Social Security taxes in private accounts.
If we don't fix Social Security, our children will pay the price--literally.
Consider my daughter. At 18, she has just started nursing school and plans a career working with sick children. Retirement is the last thing on her mind, but what we do about Social Security will profoundly affect her future.
In 2018, when my daughter is 31, Social Security will start spending more in benefits each year than it takes in from payroll taxes. From then until 2042, it can pay benefits by cashing in the federal bonds in its trust fund. But once those bonds are gone, benefits would have to be cut. So when my daughter reaches retirement, she will get only about 70 percent of the benefits she's been promised.
Fixing Social Security today, and adding private accounts, can give my daughter the same sort of retirement security her parents and grandparents have. A personal retirement account would earn higher returns than the government-run system, and allow her higher retirement benefits without higher taxes. She wouldn't need to make risky investments: By investing part of her Social Security taxes in government bonds, she could have twice the benefits she's now promised.
Most workers could do even better, The mix of investments suggested in the President's plan would probably yield about 4.6 percent annually--about 50 percent more than would be earned by government bonds alone.
All parents want to leave a better world for their children. Fixing Social Security and adding personal accounts will help make that happen.
--David C. John The Heritage Foundation
The purpose of Social Security is to assure basic income for retired Americans. No private account can achieve that goal because of the risk that investments in such accounts can lose value.
In 2000-01, when the stock market plummeted, millions of Americans were reminded that this risk is terrifyingly real. Such a meltdown in the value of investments belonging to retirees or workers about to retire would be catastrophic.
Privatization would expose workers to risks they are poorly equipped to handle, and it would subject their children to debts they should not be asked to bear. The federal budget faces deficits estimated at $5 trillion over the next decade. Diverting 2 percentage points of payroll taxes from Social Security into private accounts, as a Bush administration commission urges, would add $1 trillion to that debt.
Closing Social Security's projected long-term deficit--sooner rather than later--is desirable. But rather than undermining Social Security by diverting payroll taxes into private accounts, Congress should move to buttress the existing system by raising the cap on earnings that are subject to taxes, adjusting benefits for inflation more accurately, and dedicating to Social Security the revenue from a tax on estates in excess of $3.5 million. These steps would keep Social Security in the black for the next 75 years.
Saving in private accounts in addition to Social Security should be encouraged. But taking payroll taxes to deposit in inherently risky private accounts would undermine the assured income that Social Security provides.
--Henry J. Aaron The Brookings Institution
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|Author:||Aaron, Henry J.|
|Publication:||New York Times Upfront|
|Date:||Mar 28, 2005|
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