Wednesday, August 25, 2010

To Privatize, or not to Privatize

As Social Security enjoys its 75th birthday, a debate is in the works. At stake is privatization of the United States' largest government program. The left rejoices and celebrates its longevity, while some on the right look to reform the plan which has existed since FDR signed it into law in 1935. Let's scrutinize the possible benefits of privatizing a bill that basically hasn't changed, much in the U.S. has.

When Social Security was created, the staying power of the program wasn't in doubt. At its inception, 17 employees were providing benefits for one retiree. The ratio is now a disturbing 3 to 1. The numbers in the future cast even more doubt as the U.S. population (in the 65 yr. old category) is expected to grow from today's 40.2 million to 81.2 million in 2040. Recent polls indicate that less than 40% of Americans believe Social Security will be here for them when it comes time to retire. Change is on the minds of many. But why are our politicians not listening to their citizens when more than half are voicing concern?

Front and center in the argument is the government role in the retirement process. Government now routinely uses surpluses from the Social Security Trust Fund to finance other non-related spending projects. Your tax dollars, which are supposed to be put away for your retirement, are being spent by power hungry Congressman and will have to be reimbursed through higher taxes. The government also, under law, has the right at anytime to collect the money you put into the system, essentially revoking your rights. Private property in the hands of government bureaucrats never sounds like a good idea.

The advantages of privatization are numerous. It empowers individuals (who, if they choose, can stay in the traditional Social Security plan) to make the decisions they feel are necessary about THEIR retirement. As, let's face it, it is their money. Opponents on the left voice unease about stock market volatility and being held at the mercy of Wall Street traders. Fact is, these accounts would allow investors only the opportunity to invest in diversified fixed income securities or mutual funds and not individual equities. Adding money into American capital markets would strengthen our financial system and boost stock indexes. Employees and their employers now pay a 6.2% payroll tax (seen our your work pay stub as FICA tax) into Social Security. Privatizing, and at the same time eliminating the combined 12.4% tax, would be a shot in the arm for individuals and corporations while at the same time limiting the reach of the Washington spending machine.

More than 30 countries around the world have recently adopted a privatized Social Security reform. Let's make it clear that here in the U.S., when the right speaks about privatizing it's only partial privatizing as about 1/3 of your FICA tax would go into your own personal account. Additionally, 3 counties in Texas opted out of Social Security before Congress enacted rules in 1983 preventing that choice (under FDR's New Deal, municipalities were permitted to leave Social Security). The results in the county of Galveston, Texas have been and continue to be encouraging. Returns outperformed what Social Security would have provided. Benefits are more valuable, while at the same time reducing the government's need for taxpayer funds. The finances in this county remain stellar and look strong going forward. Noteworthy in this case is this fragile economy, but most importantly is the Galveston residents' ability to control their own retirement destiny.

The argument surrounding privatization will continue for years to come. Wisconsin Senator Paul Ryan is the lone voice in the Republican party trying to tackle this eventual disaster. Political will is in short supply with the November elections looming, but the major issue in this controversy is government intrusion into our personal property. The guarantee-free confiscation of our hard earned money seems like a real crummy deal to me.

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