02.22.05
Social Security Privatization
I was reading a Cato institute opinion article today, and they pointed out something interesting: Social Security privatization is a hidden tax increase.
Or least a deficit increase.
The thing is, with privatization, we’d have 100 million small mutual fund accounts to administer. This would take 10,000+ people. 10,000+ employees do not come cheaply.
Which brings me to the issue of Social Security privatization in general. I’m against it. It offends me on many levels, some of which I’ll detail:
First off, we don’t have the money. Regardless of what the Cato institute says, privatization is not an option for fixing social security. Privatization will require maintaining the current system along with spending an additional trillion dollars. Now, Social security will be less in crisis in 40 years than our discretionary budget is now. Social Security isn’t in crisis, but government spending is.
Another problem is that this isn’t privatization. We’ll likely have five mutual fund choices to choose from, that are pretty much guaranteed to do worse than the market on account of the fact that this would be a government savings program rather than a nimble market solution. We also won’t be able to touch the money until we’re over a certain age, and then it’ll likely be as a forced annuity that the government likely takes the principle of when you die.
I have other basic issues with it, such as the idea that this is “social security”, yet we’re increasing risk when it’s likely that we’ll support the people who lose their money through privatization anyway, as most people don’t terribly like the idea of having a good portion of the elderly stuck in poverty.
So, personally, I don’t get it. Social Security privatization in its likely form would cost a huge amount of money while swelling the size of government and providing little in the way of additional benefits for the average citizen.
Now, I know there are a few arguements out there for it, such as the idea that the government won’t be able to cover the spending for Social Security in the future, so we should put money some place that it can’t touch. The problem with this is that we still have to find the money to put aside. So, we can either pay $1 to $2 trillion up front, or we can pay slightly less later.
Fine and good, you say, but what if the US has serious problems with covering the retirement of the baby boom generation, and can’t afford to support social security in the future?
The problem with that argument is that if the government has a problem covering its promises, then the stock market won’t be doing terribly well either, as the economy as a whole will be awful. Which means that the privatized accounts will be losing money, and doing roughly the same thing that directly cutting benefits would do.
About the only argument that I could go for is that we want the government to take its hands off our money, and just let us invest it. In that case, given that we can’t afford the programs that we currently have, I’d say it’d make more sense to put in a 2% forced tax that people will have to put into IRAs and can’t touch until they’re old enough. We can’t take the money out of our current taxes, because we’ve already spent more than our current taxes are bringing in, and it’s just not possible to create a new benefit out of thin air.
Unless, of course, you’re fine with massive annual budget deficits.