Brummett: Social Security Privatization “very ruination of this vital contract.”(Social Security Series Part 5)

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George Bush discusses his plans to privatize Social Security.

Social Security Series Part 5

John Brummett in his article “Boozman: Superman or Superficial?” (Arkansas Times, Sept 30, 2010) asserted, “that to take money out of Social Security and let individuals risk blowing it with bad investments would invite the very ruination of this vital contract.”

Personal accounts are safer than the current system.

What is the solution to the Social Security problem for young people? Ron Paul addresses this in his Dec 27, 2010 radio address:

Notice that neither political party proposes letting people opt out of Social Security, which exposes the lie that your contributions are set aside and saved. After all, if your contributions are really set aside for your retirement, the money is there earning interest, right? If your money is in your account, what difference would it make if your neighbor chooses not to participate in the program?

The truth of course is that your contributions are not put aside. Social Security is a simple tax. Like all taxes, the money collected is spent immediately as general revenue to fund the federal government. But no administration will admit that Social Security is nothing more than an accounting ledger with no money. You will collect benefits only if future tax revenues remain high. The money you paid into the system is long gone.

My hope is that at least some members of the new Congress will cut through the distortions to see Social Security as it really is. The best way to fix the impending Social Security crisis is also the simplest: Allow younger individuals to opt out of the program and use their tax savings to invest privately as they see fit. This is the true private solution. Your money has never been safe in the government’s hands and it never will be.

Ron Paul has rightly noted that basically Social Security needs to be seen for what it really is. Dan Mitchell of the Cato Institute has rightly noted that Social Security is a “tax and transfer entitlement scheme.”

Below are some figures from a 1995 article by William Shipman of the Cato Institute:

Monthly Benefit Comparison of Social Security and the Capital Markets by Date of Birth, Income, and Age of Retirement (1995 Dollars)

[Bar graph omitted. Tabular presentation given.]

Year of Birth:  1930

               Retirement Age 62           Normal Retirement Age
            Low Wage      High Wage        Low Wage     High Wage
___________________________________________________________________

Social
 Security     $439          $929             $551         $1,200

Bonds         $380        $1,341             $574         $2,072

Stocks        $864        $2,614           $1,301         $3,999

Year of Birth:  1950

               Retirement Age 62           Normal Retirement Age
            Low Wage      High Wage        Low Wage     High Wage
___________________________________________________________________

Social
 Security     $468        $1,144              $631        $1,562 

Bonds         $749        $3,194            $1,069        $4,585

Stocks      $1,599        $6,380            $2,490        $9,972

Year of Birth:  1970

               Retirement Age 62           Normal Retirement Age
            Low Wage      High Wage        Low Wage     High Wage
___________________________________________________________________

Social
 Security      $529       $1,315              $769        $1,908

Bonds          $676       $3,268            $1,085        $5,243

Stocks       $1,363       $6,610            $2,419       $11,729

Source: Author’s calculations based on figures in Social Security Administration, Social Security Bulletin, Annual Statistical Supplement, 1994 (Washington: Government Printing Office, 1994); Stocks, Bonds, Bills and Inflation (Chicago: Ibbotson Associates, 1995); and “IFC Investible Index,” International Finance Corporation, Washington, 1995.

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