F.R. Duplantier reporting Behind The Headlines
Week of:
July 23, 2000
Social Security or Something Better?

F.R. Duplantier

by: F.R. Duplantier

"The reasons for privatizing Social Security are much more fundamental than just financial issues."

"The corridors of Washington are ringing with calls to 'save' Social Security," observes Michael Tanner of the Cato Institute. "And it is certainly easy to understand why the program needs 'saving.' Social Security is rapidly heading for financial insolvency," Tanner reports. "By 2015 the program will begin running a deficit, paying out more in benefits than it takes in through taxes. The resulting shortfall," he warns, "will necessitate at least a 50-percent increase in payroll taxes, a one-third reduction in benefits, or some combination of benefit cuts and tax increases."

Assuming it were solvent, Social Security would still be "a bad deal for most young workers," declares Tanner. "The return will be abysmal for most people, even if Social Security pays every penny promised," he asserts. And then there's "the huge opportunity cost. People could be earning a higher rate of return elsewhere if they weren't forced to put their money in the Social Security system," Tanner explains. "With Social Security you're lucky if you can get a one or two percent rate of return." He foresees "a society in which there are savers and investors, and other people who do not get to participate in savings and investment. The people who can save, invest, and accumulate money can pass it on to their heirs," Tanner observes. "The people who have nothing but Social Security cannot."

Tanner points out that "none of the current proposals to save Social Security actually does so." He emphasizes that "the current focus on 'saving' Social Security is itself misguided. Merely finding sufficient funding to preserve Social Security fails to address the serious shortcomings of the current system," Tanner asserts. "The question should be not whether we can save Social Security, but whether we can provide the best possible retirement system for American workers. Such a system," he suggests, "should keep seniors out of poverty as well as improve prospects for future generations. It should provide an adequate retirement income and the best possible return on an individual's money. It should be fair," Tanner advises. "Certainly, it should not penalize the disadvantaged in society," he insists. "And it should allow people to own their benefits, freeing seniors from dependence on politicians and politics for retirement benefits."

Tanner concludes that Social Security "fails both as an anti-poverty program and as a retirement program. It contains numerous inequities," he continues, "and leaves future retirement benefits to the whims of politicians. Why," Tanner asks, "should the goal of public policy be to save such a program? Instead of saving Social Security," he recommends, "we should begin the transition to a new and better retirement system based on individually owned, privately invested accounts. A privatized system would allow workers to accumulate real wealth that would prevent their retiring to poverty," Tanner anticipates. "Because a privatized system would provide a far higher rate of return, it would yield much higher retirement benefits," he explains. "Because workers would own their own accounts, money in them could be passed on to future generations."

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