Video: Only one way to rescue Social Security
posted at 2:55 pm on January 11, 2011 by Ed Morrissey
Cato’s Dan Mitchell gives another video primer on the crisis facing Social Security and the dearth of real options for reform for the Center for Freedom and Prosperity, and it’s well worth the watch. The two most-mentioned prescriptions for reform are benefit cuts and higher taxes. But the real problem in Social Security is that its investment value for workers continues to fall, and both of those solutions make the situation worse. One cannot reform a Ponzi scheme by making it more expensive or less lucrative, and the dearth of new participants dooms a Ponzi scheme of any sort. The only real solution is to give workers control over their own funds and to keep them away from Congress:
There are two crises facing Social Security. First the program has a gigantic unfunded liability, largely thanks to demographics. Second, the program is a very bad deal for younger workers, making them pay record amounts of tax in exchange for comparatively meager benefits. This video explains how personal accounts can solve both problems, and also notes that nations as varied as Australia, Chile, Sweden, and Hong Kong have implemented this pro-growth reform.
There is one other point to make about privatization. The tax changes in the early 1980s that created IRAs and 401k plans created a revolution in the investor class. Prior to those changes, the investor class was only around 10% of the families in the US. In less than a generation, that changed to over 70%, with nearly all workers owning stocks and bonds through private retirement accounts. The massive influx of capital into investor markets helped create the 25-year boom economy, which got derailed only when government interventions to impose “fair” outcomes in the housing market backfired.
Considering the lack of investment capital at work at the moment, imagine what privatization could do for the American economy now. And if that isn’t enticing enough, imagine how being unable to take Social Security money to cover budget gaps would do to restrain Congressional spending.
Blowback
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Maybe something like this should be a condition for raising the debt ceiling.
Its time to make the libs squirm.
Iblis on January 11, 2011 at 2:58 PM
I’d gladly sacrifice every dime I have paid in, as long as I never have to pay another dime in.
It is generational theft. It benefits only government.
END IT NOW!
Inanemergencydial on January 11, 2011 at 2:59 PM
I just know if the end SS, they’d at least double our income taxes to make up for all the money they’re not “making” anymore.
Kelligan on January 11, 2011 at 3:01 PM
Not that I think social security is a good program or have any delusions that I’ll ever be able to collect it.
Kelligan on January 11, 2011 at 3:02 PM
If you stop stealing my $$ to pay for SS, then I can contribute more to my pension fund.
That would be real nice.
Bcs right now, SS is nothing but a tax that I am prepared to never see another dime of in the future.
Thanks a lot Congress, you worthless bunch of POSes.
Badger40 on January 11, 2011 at 3:05 PM
Excellently presented. Thanks for posting this!
itzWicks on January 11, 2011 at 3:06 PM
Dan Mitchell rocks. Be sure to check out his blog:
http://danieljmitchell.wordpress.com/
visions on January 11, 2011 at 3:08 PM
Mark Steyn’s ‘America Alone’. Inshallah
Skandia Recluse on January 11, 2011 at 3:11 PM
Regardless of what we’re told by our government officials and Federal Reserve Chairman in media soundbites, or what a large portion of our fellow Americans want to believe after they’re done smoking or injecting their daily dose of hopium, the reality is that the world, especially the United States, is about to enter a time unlike anything we’ve ever seen before, and Social Security along with all other entitlements will either be drastically reduced or worst case eliminated due to default or worse.
PatriotRider on January 11, 2011 at 3:19 PM
I keep expecting him to say… “Ya think ya hate it now, wait til ya drive it.”
Eugene Levy from NL’s Vacation
jeffn21 on January 11, 2011 at 3:23 PM
Any plan that denies retirees at least a portion of what they paid in is wrong. Workers who say too bad, the money is gone, are actually the greedy ones. Seniors had no choice, and many after paying social security taxes had little to save. Eliminating Social Security is fine as long as those who had no choice are compensated in some way. Seniors are a large voting block and will not be used as sacrificial lambs.
Rose on January 11, 2011 at 3:26 PM
Isn’t this kinda what Bush tried to do and it got demonized? I’m all for privatization, even partial. I’d like to put part of my SS taxes into my 401K.
atxcowgirl on January 11, 2011 at 3:26 PM
I like this idea, but how do we make the Republicans in D.C. take this idea and press it hard? Dont tweet it to Sarah Palin or the Beltway GOP will never try it! lol
ThePrez on January 11, 2011 at 3:28 PM
Even at 50 years old, I too would love to opt out without conditions if I could capture all of the future tax for my personal account. The additional contribution of the 12% to my 401k would make up the difference. Gov’t has never been the source efficient services. I do not want to beg to them for anything!
UkiddenMe on January 11, 2011 at 3:37 PM
The privatization argument reveals one problem: even though it would pretty well fix the current SS system, you’d still be left with an unconstitutional mandatory savings program. Even if it were something you could opt out from, it would still be something the federal government shouldn’t administer.
theperfecteconomist on January 11, 2011 at 3:47 PM
It’s a mess on all fronts. Just yesterday I heard of a 40 year old woman who has collectively worked only about 3 or 4 years before she fell into drugs and alcohol which pushed her into bad health. Not only is she now collecting 700$ a month, SSI awarded her 25K in back SS since she first applied when she was in her early thirties. The upshot? Her drug suppliers have a fresh supply of our money to fund their business. Now, I ask you, how can a system as bad as this simply keep going and get worse? I know the answer, but I don’t want to appear anti-government.
jeanie on January 11, 2011 at 3:49 PM
It would be necessary to do means testing of benefits for current and near future retirees in order to conserve enough money in the system cover the losses to the system of converting young workers over to the privately owned accounts. I think this is worth it to acheive the benefits outlined in the presentation but it makes it very difficult politically as the older voter is a very reliable voter and likely to vote his pocketbook interset.
KW64 on January 11, 2011 at 3:52 PM
Very good point. Now contrast seniors with federal employees, who don’t pay fully for their gold-plated healthcare plans, don’t contribute to their gold-plated pensions, and appear to be overpaid and over-bonused.
Let’s make drastic cuts in federal headcount and employee costs long before we attack senior that have paid for the benefits they have coming.
slickwillie2001 on January 11, 2011 at 3:59 PM
Wasn’t there a court case dealing with SS returns? Didn’t the court (which one? SCOTUS?) decide that citiznes had no right to expect a return of SS benefits bcs it was basically a tax?
Someone help me out here.
I personally pay half of my pension contribution & my school district pays the other.
Like I said on another thread,why does my pension, as a teacher (public employee in ND) get to be garaunteed by the state if the stock market causes it to lose value?
Who else gets that treatment in the private sector with a 401K?
It’s crap.
Badger40 on January 11, 2011 at 4:04 PM
I’m an older voter and I was very much in favor of privatization at the time. I did/do think it should not be forced on those who feel unable to handle it however. There should be alternatives. Also, the SS Administration is probably one of the most poorly run bureaucracies on a long list of poorly run government agencies. Perhaps forcing them to shape up might help some. I, for one, would welcome a chance to be free of them and manage my own retirement funds including medical. Animosity towards them is so great these days that even the smallest offices have law enforcement on the premises whenever the offices are open.
jeanie on January 11, 2011 at 4:04 PM
“Now contrst this with Federal employees…”
Yes, and it is gauling in the extreme. Many folks who have paid into SS all their working lives cannot collect in the end because they have another public pension and cannot double dip.Anything they paid in is income distribution, pure and simple, since they never see a penny of it. Howver, in the case of Federal employees, as I understand it, is that if they switch to another Fed. retirement system which might subject them to the double dipping rule, they can work it off after five years and no longer be subject to the double dipping rule and merrily collect both. Now, I’m not sure I understand this properly and if I’ve got it wrong please correct me. thanks.
jeanie on January 11, 2011 at 4:14 PM
I really do sympathize, I am 55 myself and have reconciled to getting at most 70% of the promised benefits because there are just not enough young workers to pay everything promised without bankrupting them. Everyone should get something so a sliding scale would be the best approach to means testing; perhaps with noone getting less than 40% of promised benefits.
The reality is we baby boomers did not raise enough children to support us in the way many expected. This demagraphic problem has been known for a long time but politicians chose to demagogue anyone who suggested change rather than get realistic. Now we are facing crisis and we must do something. Means testing is the least bad approach as I see it; I am all ears for something better.
KW64 on January 11, 2011 at 4:25 PM
KW64, I also am 55, my husband is 61. We just don’t have enough time to save what we will need. When Bush was talking about this I thought it was a good idea because we would have had some time to save. But even then I didn’t want to see seniors left with nothing. Something needs to be done, but society just cannot say “too bad seniors, there is no money”.
By the way, I did my part. We have four children.
Rose on January 11, 2011 at 4:50 PM
Is it really “constitutional” to force taxes on the young to pay retirement benefits to the elderly? Apparently, that question was already answered “yes” in 1935, so there shouldn’t be a constitutional problem. There are also Federal limits on how much a person can deduct from taxable income for investment in an IRA or 401k, and penalties for early withdrawal. The Government regulations incentivize saving for retirement, without actually mandating it.
Payroll taxes for Social Security are already mandatory, so that allowing a person to divert some of the money into a personal account regulated but not managed by the Federal Government would actually increase people’s freedom to choose their retirement.
If there is some concern over the Government’s ability to pay current and near-future retirees, the program could have a limit on the fraction of payroll taxes the person could divert to private accounts, with the limit being higher for younger workers than older workers. This would allow a “phased-in” privatization that would keep current retirees funded, while incentivizing private saving for younger workers. Although this might not seem “fair” favoring the young over the old, this problem has been 75 years in the making, and needs to be phased out gradually in order to avoid hurting any one age group too harshly.
There would be no “mandate” to save, but a CHOICE–where the person could choose how much tax money to invest in private accounts (up to the limit mentioned above) and how much to keep in the Government system. This is a CHOICE not currently available to low-income workers who can’t afford to contribute their own money to IRA’s and 401k’s.
Of course, there needs to be a downside risk: the person’s eventual benefits from the Government program are proportional to the amount of money contributed to it, so that the person forgoes some Government benefits by contributing to the private account, but the person might come out ahead by investing wisely and getting a better return on investment than the Government, with the risk of losing part of the private account if it is invested unwisely.
If enough young workers “opt out” of the Social Security system for private accounts, the eventual debts of the system will be lessened, while billions of new dollars pour into the stock market, thereby stimulating the economy and creating new jobs, with more people financing their own retirement. Over the course of decades, most workers would probably prefer the private accounts, and the mandatory contribution to the Government program could be gradually reduced to only cover those retirees without private savings.
Yeah, this does sound like what Bush wanted to do in 2005, and Democrats “saved” Social Security by doing nothing. Or did they?
Hey America, do you miss Bush yet? The ol’ dumb oil-gushin’ cowboy did have a few good ideas under his Stetson, didn’t he?
Steve Z on January 11, 2011 at 4:55 PM
I understand, in principle, what you have proposed.
Now, let’s look at reality: millions who have deposited their savings for retirement in IRA’s, etc, were essentially wiped out because the US government allowed the BIG BANKS to take the IRA moneys, claim to the individual investor that their funds were actually used to purchased stocks, securities, etc, but then used the investor’s funds to play Russian roulette in the hedge funds and derivatives markets.
The BIG BANKS thought that they could report gains in the investor’s funds, although they never actually invested in said funds, because their Ponzi scheme would never fail. The BIG BANKS used their investor’s IRA funds to play craps and roulette with the idea that because the economy was expanding, the BIG BANKS could always be able to cover their losses in Las Vegas, and still be able to pay the individual IRA investor when demanded.
This Big Bank Ponzi scheme fell apart when the US economy tanked. The US Government, under the umbrella of TARP, validated the Ponzi scheme hatched by the BIG BANKS by supplying enough public capital to enable the BIG BANKS to meet their current requirements to pay back, principle and interest, those US citizens who were demanding to draw down their fictitious paper IRA accounts.
So, I says, why the hell would I want my generous investment into an IRA, etc, account to be placed into a “paper” account that allows the BIG BANKS to divert my moneys to finance their Russian roulette gambling on hedges and derivatives?
While I respect your general political viewpoints, I think you have gone to far by ignoring the reason for TARP, the economy meltdown, etc.
Social Security might be in freefall, but investing in anything private in IRAs, etc, is an investment in a government-subsidized Ponzi scheme designed to strip the moneys “invested” by the individual citizen, with both the willing and witting approval of the US Government in support of the BIG BANKS gambling with our moneys.
Quaoar on January 11, 2011 at 5:13 PM
Social[ist] [In]Security was a Ponzi scheme from the beginning and a Democrat Cookie Jar. My problem was that I wanted out of it years ago, and now that I’m retired I see no way out for people my age. Add to the Ponzi scheme the current trend to debauch our currency, and we are headed on a down-hill slide toward third world status.
oldleprechaun on January 11, 2011 at 5:16 PM
A capital idea! I suggest every national republican run on a platform of immediate, complete dismantling of Social Security. Its the only way. The GOP should run in 2012 on that promise. C’mon guys…you can do it!
ernesto on January 11, 2011 at 5:16 PM
I understand, in principle, what you have proposed.
Now, let’s look at reality: millions who have deposited their savings for retirement in IRA’s, etc, were essentially wiped out because the US government allowed the BIG BANKS to take the IRA moneys, claim to the individual investor that their funds were actually used to purchased stocks, securities, etc, but then used the investor’s funds to play Russian roulette in the hedge funds and derivatives markets.
The BIG BANKS thought that they could report gains in the investor’s funds, although they never actually invested in said funds, because their Ponzi scheme would never fail. The BIG BANKS used their investor’s IRA funds to play craps and roulette with the idea that because the economy was expanding, the BIG BANKS could always be able to cover their losses in Las Vegas, and still be able to pay the individual IRA investor when demanded.
This Big Bank Ponzi scheme fell apart when the US economy tanked. The US Government, under the umbrella of TARP, validated the Ponzi scheme hatched by the BIG BANKS by supplying enough public capital to enable the BIG BANKS to meet their current requirements to pay back, principle and interest, those US citizens who were demanding to draw down their fictitious paper IRA accounts.
So, I says, why the hell would I want my generous investment into an IRA, etc, account to be placed into a “paper” account that allows the BIG BANKS to divert my moneys to finance their Russian roulette gambling on hedges and derivatives?
While I respect your general political viewpoints, I think you have gone to far by ignoring the reason for TARP, the economy meltdown, etc.
Social Security might be in freefall, but investing in anything private in IRAs, etc, is an investment in a government-subsidized Ponzi scheme designed to strip the moneys “invested” by the individual citizens, with the willing and witting approval of the US Government in support of the BIG BANKS gambling with our moneys.
If we support Social Security, or we support individual IRAs, it make no difference: the individual retiree is screwed to the wall, no matter the choice.
Quaoar on January 11, 2011 at 5:17 PM
Well we’re stuck with it aren’t we. Look closely folks, it’s an omen of the future of ObamaCare.
jeanie on January 11, 2011 at 5:34 PM
The constitutionality of SS was tested in the wake of FDR’s court-packing threat, and I disagree with those decisions. And having a choice between a federal option and a private option is certainly appealing when no private option exists, but there shouldn’t be a federal option in the first place. The federal government shouldn’t incentivize savings just as it shouldn’t incentivize spending, and trying to do both has just led the federal government to grow from both ends.
theperfecteconomist on January 11, 2011 at 5:38 PM
SS was the greatest political Ponzi scheme ever devised. You could start collecting at age 65 – at a time when the average life expectancy was 59. Then the liberals started raiding the “trust funds” for other social uses.
The same people recently passed legislation to “improve’ the health care delivery system.
GarandFan on January 11, 2011 at 6:44 PM
Obama is using a Connecticut issued SSN for someone who was born in 1977-78, some thirteen years after BHO was born. How is this possible? He never lived in Connecticut. Why isn’t the “mainstream media” investigating this?
bannedbyhuffpo on January 11, 2011 at 6:58 PM
What? Where did you get this info?
Badger40 on January 11, 2011 at 7:08 PM
Old story: Obama’s 16 Different Social Security Numbers
Just another one of those things the press has no interest in.
slickwillie2001 on January 11, 2011 at 7:36 PM
I’d be willing to commit half my tax to the current system and forgo collecting myself if I could take the other half and invest it how I saw fit.
Kafir on January 11, 2011 at 8:06 PM
Cash out the current recipients and deep-six this thing.
Breederiffic Ponzi schemes are NOT the way to ensure old-age financial security.
Dark-Star on January 11, 2011 at 9:05 PM
He needs a little voice training. I think he’d be a more effective a presenter with some. Good info though.
scotash on January 11, 2011 at 10:37 PM
Compared to any “real” investment, Social Security is a huge, consistent, long and short-term LOSER!!!
This is not surprising, as the money you put in immediately is stolen and diverted to another purpose. Thus there is NO return, NO investment: only a Ponzi scheme which make Bernie Maddoff look like a pillar of honesty by comparison. A monkey tossing darts at potential investments can do much better than the government!!!
And the fact that SS funds are not actually invested means that the entire economy suffers from a lack of the capital which would otherwise be provided by a “real” retirement investment.
The CATO Institute has this absolutely right!!! The ONLY solution to the Social Security mess (and the Medicare mess) is to take the funds away from government control. And Chili’s experience shows that this will work…and work quickly…to turn the Social Security disaster around!!!
landlines on January 11, 2011 at 11:28 PM
As in all Ponzi schemes, when SS crashes people are going to be screwed. If we make a fazed in shift to a privatized system now we can at least make sure that those that get screwed, can afford it.
Slowburn on January 12, 2011 at 12:30 AM
Joe Biden need to watch his wallet
Dire Straits on January 12, 2011 at 11:33 AM
I think a system of mandatory savings into a federally approved savings/investment system has the same constitutional problems as a system of mandatory purchase of health insurance.
Even though as a policy I would like this system better than the current one, I do not think the constitution provides Congress the power to create it. Sadly, I do think the constitution gives the power to tax the money away with no guarantee of any kind of return, as in the current system. Its problems are mathematical rather than constitutional.
Rev Snow on January 12, 2011 at 3:22 PM