The idea of privatizing Social Security is catching on in America. The big question is, How wouldwe do it?
"The current Social Security system is inevitably headed for bankruptcy," warns Peter Ferrara of Americans for Tax Reform. In a special report prepared for the Cato Institute, Ferrara argues that privatization of Social Security is the only realistic alternative to certain turmoil. With a private retirement account, he contends, "the average two-earner couple would retire with a trust fund of over $1 million."
The problem with Social Security is that it "operates on a pay-as-you-go basis, with the funds coming in immediately paid out to current beneficiaries. This system," Ferrara emphasizes, "displaces private, fully-funded alternatives. . . . The result," he says, "is a large net loss of national savings, reducing economic growth. Shifting to a private system, with hundreds of billions of dollars invested in individual retirement accounts each year, could produce a large net increase in national savings. This would increase national investment, productivity, wages, jobs, and economic growth."
A growing economy is good for everyone, as is a secure retirement fund. "The poor would be among the biggest gainers from a private system," Ferrara insists. "That is because they tend to live fewer years in retirement and consequently collect less in benefits. In a private, invested system, by contrast, individual workers would each retain control over the funds paid in, and could pay themselves higher benefits over their fewer retirement years, or leave more to their children or other heirs."
Sounds good, but what about the transition period? "Any privatization proposal should begin by assuring current retirees that they will not be affected by the reforms," declares Ferrara. "The proposal should irrevocably commit and emphasize that currently promised benefits for current retirees would not be reduced or changed," he insists. "The government has led these people to rely on its promises, and at this late state in their lives, and after all the money they have paid into the system, it is too late for them to make alternative arrangements."
Workers near retirement age may want to stick with Social Security, while young workers will undoubtedly opt out. But what about all the workers in between? Ferrara recommends paying "all workers who opt out a full refund for their past taxes." He emphasizes, however, that "Social Security is now such a bad deal for younger workers that up until about the age of 40 or 50 they will probably still be better off in the private sector even without the refund of any past taxes."
What's the downside to privatization? There is none -- unless you're a meddling bureaucrat. "Privatization of Social Security would give American workers direct personal control over the thousands and thousands of dollars they and their employers now must pay into Social Security each year," Ferrara concludes. They would thus be able to "tailor their retirement and insurance benefits to their own personal needs and circumstances." Isn't that the way it should be? Isn't that the American way?
