A Demographic Time Bomb
By Ryan Walsh (08/28/04)
I remember when, in my adolescent naivete, I assumed that every time a small piece of my paycheck went to Washington under the appellative of a “Social Security” tax, the good stewards of government immediately deposited it in Ryan Joseph Walsh’s retirement account, enclosed in a steel safe and guarded by a heavily armed security detail. I later learned that, much to the contrary, the government had “invested” (read wasted) my payroll tax in certain “projects” (read pork) such as a “Please Touch” museum in Pennsylvania and a larger, comfier office for the “Honorable” Robert Byrd. Social Security taxes for pork projects? So much for my lock box, Al.
Yet comparatively, this is but a small glitch in larger malfunctioning machine. Social Security is, and has always been, a bankrupt scheme waiting to manifest. There are a few reasons why.
Social Security is a pay-as-you-go system, meaning today’s workers pay for today’s retirees. When FDR sold the idea to the American people during the Great Depression, it worked beautifully. Back then, 42 workers could pay for a single retiree’s benefits. Today, because of major demographic changes, there are only three workers per retiree. Since the trend is unanimously expected to continue in this direction, Social Security will begin running a “deficit”—paying out more than it takes in—in 2018.
In a rare spout of honesty and clear-headedness, President Clinton once assessed these problems and pointed to the three obvious solutions: raise taxes, cut benefits, or allow private investment.
So which of the options has the Democratic Party endorsed? The official party platform reads, “We are absolutely committed to preserving Social Security…. Democrats believe in the progressive, guaranteed benefit…not subject to the whims of the market or the economy. We oppose privatizing Social Security or raising the retirement age.”
That leaves only one alternative: raise payroll taxes. But Kerry has already said that his administration would not “raise premiums”—or, more accurately, taxes. Democrats are “absolutely committed” to Social Security, yet they talk down any solution while proposing none of their own. Hmmm…
A bill co-authored by Wisconsin’s own Rep. Paul Ryan would, if made law, completely solve the program’s fiscal imbalance. The Ryan-Sununu plan would provide an opportunity for anyone paying into Social Security to invest a portion of that tax—6.4 percent of the total 12.4—into a personal investment account, which could be used for stocks, bonds, etc. According to the Institute for Policy Innovation, this bill would effect the “largest reduction in government debt in world history by eliminating Social Security’s $11 trillion unfunded liability,” and provide a “permanent surplus for Social Security.” Under this plan, a contributor to Social Security wouldn’t even have to take advantage of the personal accounts at all; he could instead opt for the traditional program.
Even more, experts say the federal government could implement the Ryan-Sununu bill without considerable transition costs. Everything considered, it is difficult to pinpoint any visible flaws in this reform proposal.
Still, Democrats object. They would never subject workers’ payroll taxes to the vicissitudes of the free market. Yet nearly every investor acknowledges that, over time, the stock market rewards. According to Social Security expert David C. John, the stock market has earned an annual average of seven percent from 1802 to today, and that includes all recessions and depressions. Indeed, just in the past 40 years, personal investments in the market would have yielded approximately over three times more than Social Security.
More than any other domestic issue of this election, Social Security reform ought to mobilize kids my age, since it is they who would profit most if things changed and lose most if things stayed the same.
Congress should implement Ryan-Sununu now. Leave the procrastination to us teens.
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