Friday, February 04, 2005

SOCIAL SECURITY--"YOU CAN'T HANDLE THE TRUTH"

The first "big story" being told by politicians is that Bush wants to take 2 Trillion Dollars out of the Social Security system. The second "big story" is that Social Security is in a crisis.

Neither is the truth but the second comes close to the truth. SSN is underfunded by 11 Trillion Dollars. If SS were a pension fund run by a private company, the politicians would be up in arms. The politicians would call it a Ponzi or pyramid scheme; which it is. Under those circumstances the massive deficit would be all over the news and it would clearly be considered a crisis.

In years past, politicians from both parties have made hay pointing out that SS is under-funded. Now that Bush is offering a plan to fix the problem, many of those who complained now say there is no crisis. The only reason there is no crisis is because the problem is not an immediate problem. There are millions of baby boomers paying into the system. In 13 years, there will be millions of baby boomers drawing out of the system. In 13 years, there will be $.73 going into the system for each $1.00 that is promised to come out. With no changes, the system faces a dark day in about 40 years when there is no money in the account.

The first "big story" is totally untrue! The Democrats want you to believe it is true so they repeat it over and over. In some instances, they say Bush wants to run up the deficit by borrowing another 2 Trillion. At other times they say that he wants to take 2 Trillion away from Social Security. The fact is that Bush does not want to withdraw any money from Social Security. He simply wants a small portion of the money to be held in different accounts. The liability is already there; the money is already owed. He wants to move where some of the assets are held and to remove some of the payment responsibility from the "main account".

Government, businesses and individuals make these kinds of decisions all the time. An individual might take money out of a savings account and put it into a house. If one individual makes extra payments on his house and another invest the same amounts in a 401-K the short-term net worth of the two individuals will be the same. However, the long-term record shows that most people who puts money into the 401-k will enjoy a far better retirement than the person who paid extra on his house. I know all of you can tell me examples of "Fred" who put all his 401-K into Enron. The plan offered allows flexibility without allowing anyone to be overly aggressive with their retirement account. Free enterprise has proven time and again that the over-whelming majority of individuals and society in general is served when individuals are allowed to make these decisions for themselves.

Bush is offering a trade to those who are paying too much and guaranteed to get back too little. Bush is willing to move some of their retirement money out of the SS trust fund and into their personal accounts. These young folks will "take the hit" now but will have the opportunity to make it back up through higher investment returns.

There is no way to get back the money that the government has over-paid! However, any truthful observer will acknowledge that the investors will get higher returns on the portion they are allowed to invest.

Democrats and republicans are going all out to tell their side of the story. Bush has skillfully developed a plan that is attractive to all those under 40 years of age, helps those who are 40 to 55 years of age a little and does not hurt or help those 55 and older. The youngest of the folks will go from hurting the most to the ones who will have the most opportunity to increase their net worth. The balances of their retirement accounts will become substantial assets that they will own.

Democrats want to maintain control of the trillions of dollars involved. Many of them have humanitarian and even socialistic reasons at heart; many in government simply crave the power.

It is no secret that Social Security as it is currently an income re-distribution program. Many democrats want to "save" Social Security by increasing the maximum pay rates without increasing the benefits. In other words, democrats want it to be even more of a socialistic or income re-distribution program and less of a retirement program.

Bush is pushing to "save" Social Security by making it more of a retirement program. The differences in the two ideas are clear. In the democratic plan, the high wage earner pays more, the economic growth of the country is slowed, but at some time in the future the politicians can once again raid the cookie jar. In the Bush plan, the basic safety net survives but individuals are encouraged to save more and the economy is improved. The money that is moved to individual accounts will have finally made it to a "lock box". A lock box owned by each individual not by Al Gore and his friends.

Clearly, the overall economy fares better under the Bush plan. For many years, the European economy has been stagnant relative to the US economy. The US economy benefits from lower tax rates. Our economy is more efficient than the European economy because we practice the philosophy of paying fair market value for goods and services.

Again, the truth is that SS is a very large Ponzi scheme. Out of the goodness of our hearts, Americans have gone along. We have allowed our government to take from the most fortunate of us to give to those who are not so fortunate. There is nothing wrong with this idea except it puts too much money in the hands of politicians. The politicians have spent our retirement money. Their plan to get it back is to raise taxes. They say they will only tax the rich but any increase in taxes reduces the American competitive advantage and is a tax on all of us.

Unfortunately, many Americans are not disciplined savers. They are not willing to set aside sufficient funds for retirement. Forcing Americans to set aside retirement savings is an affront to freedom but is never-the-less a good thing. When Roosevelt "sold" America on SS it was sold as a retirement plan; the fight to make it truly a retirement plan will be a tough fight. In matters of great importance, the truth wins. The truth is the sooner the SS problem is fixed the better and the Bush idea of how to fix the system is a good one.


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