Once the baby boomers are finished getting on Social Security (2011 to 2030) there will be nothing left.

Uploaded by on Jun 21, 2011

Senator Kay Bailey Hutchison delivered remarks regarding her landmark proposal on entitlement reform, the Defend and Save Social Security Act at the Heritage Foundation’s “Saving Social Security” event. Sen. Hutchison announced that Senator Jon Kyl (R-AZ), member of Biden’s budget working group, has lent his support of her bill as the original cosponsor. At her press conference last week, Sen. Hutchison unveiled her Social Security proposal, and today she reiterated the urgency of putting Social Security on the table in the Biden budget group discussions. Sen. Hutchison sent a letter to Vice President Joe Biden last week urging him to incorporate Social Security reform in the ongoing deficit reduction debates that he is leading.

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Once the baby boomers are finished getting on Social Security (2011 to 2030) there will be nothing left.

There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion.

The other crisis is that the system gives workers a lousy level of retirement income compared to the amount of taxes they pay during their working years. Younger workers are particularly disadvantaged, as are African-Americans because of lower life expectancy.

These are critical issues, but perhaps looking at a couple of charts is the best way to illustrate why the Social Security system is inadequate.

Let’s start by looking at some numbers from Australia, where workers set aside 9 percent of their income in personal retirement accounts.

This system, which was made universal by the Labor Party beginning in the 1980s, has turned every Australian worker into a capitalist and generated private wealth of nearly 100 percent of GDP. Here’s a chart, based on data from the Australian Prudential Regulation Authority.

Now let’s look at one of the key numbers generated by America’s tax-and-transfer entitlement system. Here’s a chart showing the projected annual cash-flow deficits for the Social Security system, based on the just-released Trustees’ Report.

By the way, the chart shows inflation-adjusted 2012 dollars. The numbers would look far worse if I used the nominal numbers.

The two charts aren’t analogous, of course, but that’s because there’s nothing to compare. The Social Security system has no savings. Indeed, it discourages people from setting aside income.

And Australia’s superannuation system doesn’t have anything akin to America’s unfunded liabilities. The closest thing to an analogy would be the safety net provision guaranteeing a basic pension to people with limited savings (presumably because of a spotty employment record).

So now ask yourself whether Australia should copy America or America should copy Australia? Seems like a no-brainer.

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Comments

  • Kallie Calligaro  On March 11, 2013 at 1:21 am

    Almost exactly nine months after World War II ended, “the cry of the baby was heard across the land,” as historian Landon Jones later described the trend. More babies were born in 1946 than ever before: 3.4 million, 20 percent more than in 1945. This was the beginning of the so-called “baby boom.” In 1947, another 3.8 million babies were born; 3.9 million were born in 1952; and more than 4 million were born every year from 1954 until 1964, when the boom finally tapered off. By then, there were 76.4 million “baby boomers” in the United States. They made up almost 40 percent of the nation’s population.^

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