The “Third Rail:” Reforming our dilapidated Social Security system.
Social Security has long been an issue that politicians have had trepidation about reforming, out of fear of losing support from the nations largest and most significant voting demographic: senior citizens. As the reader knows, American politicians and the media have dubbed Social Security “the third rail of American politics.” As such, politicians have refrained from discussing serious reform to this distended and archaic entitlement program. With the nation currently trembling on the brink of calamity and our nation’s fiscal future dwindling on the precipice, it is imperative that conservative’s make Social Security personal accounts a cornerstone of the 2012 presidential campaign.
If the next generation of Americans intends to live in a flourishing, prosperous and financially solvent America, conservatives must make Social Security reform a foremost priority. This article seeks to examine in scrupulous and painstaking detail, the current tribulations with the Social Security system, elucidations for reform, and a conservative, free-market reform proposal. The outlined in this article is based off the author’s 2008 magnum opus, The New Wave of the Future: Social Security Reform and the Future of Entitlement Spending.
Preliminary Remarks
Prior to inaugurating a discussion about his proposal for reforming Social Security, the author intends to provide readers with a series of appalling statistics regarding the current state of our government-administered Social Security system. The Congressional Budget Office, in a February 2012 report, projected that the Social Security trust fund will witness a $60 billion cash shortfall for fiscal year 2012. This is a marked increase from last fiscal year when the trust fund was a colossal $48 billion, twelve billion less than the projected shortfall for the current fiscal year. Subsequently, the CBO projects that over the next five years, the Social Security trust fund will have a cash shortfall of $99 billion. By 2015, Social Security will begin running permanent deficits that will require hundreds of billions of dollars to pay recipients their full benefits. What is more, in the next seventy-five years, the Social Security trust fund owes a whopping $7.9 trillion more than it will receive in payroll taxes. By 2037, Social Security will only be able to pay seventy-three cents on each dollar of benefits collected. As the reader can discern from the aforementioned statistics, the current government run, pay-as-you go Social Security system is insolvent, bankrupting America, and will be unavailable for future generations. With Social Security beginning its precipitous decline towards insolvency, it is pertinent that conservatives induce the electorate to believe that personal accounts, not the current pay-as-you-go system, are the most viable solution for reforming this passé entitlement program.
A conservative, free-market proposal for Social Security reform
Personal accounts, as advocated by leading conservative scholars, and Republican politicians, are the antithesis of the derelict pay-as-you-go system. The author has developed a four pronged proposal for reforming Social Security: the establishment of personal accounts that allow citizens to invest the full share of their payroll tax (6.2 percent) into personal accounts; alleviating the cost of transferring from a government-run to a citizen-controlled Social Security system by using the employers share of the payroll tax to cover the transfer cost; allow citizens to create Life Cycle Accounts; and increase the age in which one can begin collecting benefits from sixty-five to seventy.
Personal accounts
It is imperative to begin by mentioning that the author’s proposal does not advocate for the immediate eradication of the pay-as-you-go system. Instead, the pay-as-you-go system would not be eliminated until 2025. As such, current recipients would continue to receive benefits under the current system. The author’s proposal advocates for the establishment of personal accounts. Under this proposal, individuals would be able to invest the full portion of their payroll tax (6.2 percent), into a personal account. As the reader can discern, individuals, not the government will be directly responsible for the oversight and management of these accounts. Peter Ferrara, one of the nation’s foremost experts on Social Security reform maintained that under a proposal similar to the one outlined in this article, a husband and wife each making $30,000 per year, will have accumulated well over a million dollars by the time they are ready to retire. Moreover, the non-partisan Congressional Budget Office notes that under a personal account system, citizens would receive three times the amount of money they would receive under the current government-run, pay-as-you-go system. In the 2012 elections, conservative candidates should outline a comprehensive proposal for Social Security reform that advocates for the establishment of personal Social Security accounts.
Alleviating the transfer cost
The transfer cost of switching from a pay-as-you-go, government-run Social Security system to one that is controlled by individuals, is projected to be $7 trillion over seventy-five years. To alleviate this cost and return Social Security to solvency, the author’s proposal uses the employers share of the payroll tax (now 4.2 percent following Congress’ decision to cut payroll taxes), to pay for the transfer cost. In so doing, it would take the federal government just twenty to twenty-five years to pay for the transfer cost. Had the employers’ share of the payroll tax remained at 6.2 percent, it would have taken just fifteen to twenty years to pay for the transfer from a government-run to citizen-controlled Social Security system.
Life Cycle Accounts
Life Cycle Accounts allow investors to fluctuate the amount of money invested into stocks and bonds throughout the duration of their working career. For example, a citizen could invest sixty percent of their money into bonds, and forty percent into low-risk stocks, upon being hired, and later invest sixty percent into stocks and forty percent into bonds as their career progresses. Life-Cycle Accounts would afford recipients with the ample opportunities to “shop around” for a program that best suits their individual needs. In a Life Cycle Account, as aforementioned, individuals would be afforded with the opportunity to invest sixty percent of their payroll tax into low-risk stocks, bonds, or both. The rate of return on their investment under a personal accounts system would be three times greater than under the current pay-as-you-go system.
Raise the retirement age
The final prong of this author’s Social Security reform proposal advocates for raising the age when recipients can begin receiving benefits from sixty-five to seventy. Raising the retirement age to seventy, the savings after two decades would be a titanic $30 billion annually. Scholars on both sides of the Social Security debate are in agreement that an increase in the retirement age would lead Social Security on a path to solvency.
Concluding remarks
With the American economy dwindling on the precipice of collapse, and our entitlement system in a state of utter disrepair, entitlement reform must be a foremost priority. Subsequently, conservatives should work assiduously to transform Social Security from a government-run to a citizen-controlled program. It is evident from the myriad of examples provided in this tome that the Democratic Party’s wanton disregard for an ownership society, personal accounts and a stable Social Security system is impeding American economic growth. It is paramount that conservatives work assiduously to initiate a colossal overhaul of the current government controlled Social Security system, and make entitlement a focal point of the 2012 campaign.
For a comprehensive analysis of the author’s proposal, The New Wave of the Future: Social Security Privatization and the Future of Entitlement Spending, contact him at: Deputy.policydirector@paxamericanainstitute.org
