by Rod D. Martin
April 13, 1998
The President last week finally kept a promise: he addressed the issue of Social Security reform.
But it should surprise no one that the President’s idea of “reform” is more talk than substance: that is the way of this White House. When Mr. Clinton announced his intention to deal with the issue in his State of the Union address, his platitude-laden speech served plenty of notice to this effect. (It also ignored the fact — pointed out in the Republican leadership’s response — that Social Security’s computers are not Year 2000 compliant and, if not fixed, will shut down the entire system twenty months from now.) Now the details, such as they are, give confirmation: the “fix” is to be more of the same: more big government, more big taxes. Privatization in particular is labeled as “radical,” which is to say, off-limits.
Why might the President even mention the “dangerous fringe notion” of privatization? Because even his liberal supporters have taken up the cause. Daniel Patrick Moynihan, in fact, has gone so far as to propose a partial privatization which would allocate two percent of FICA for investment in private IRAs. This is nowhere near enough, but it tells which way the wind is blowing.
This does not play well at the White House. Social Security was supposed to be an election year issue for the Clinton crew, a way to demonize “heartless” Republicans while mobilizing the Democratic AARP faithful. The truth, however, is beginning to out, and if Republicans will seize the moment, they may well ride the President’s issue to a major victory in November.
The case for privatization is as simple as it is overwhelming: it’s your money, and the government is stealing it. Your Social Security “investment” presently earns a 2.2 percent return. You would earn more with a passbook savings account; adjusted for inflation, you are losing money. Your likely death benefit is under $300, somewhat less than the average cost of a well-made pine box. Your likely average monthly income, after having twelve percent of your income siphoned off for your whole working life, is a little over $700 per month.
Privatization, however, changes the whole equation. Suppose you are 20 years old and earning $10,000 a year. You and your employer are paying $1,240 a year in Social Security taxes. That’s 12.4 percent of your hard-earned income, for benefits that you will likely never see.
Suppose instead you could invest that same $1,240, as well as an additional $2.50 a week. Assuming a long-term return on your investments of 8 percent a year, by the time you reached 65, your portfolio would be worth $1.3 million. If you work until age 70, it jumps all the way to $2 million.
Now let’s adjust this for inflation, assuming a historically reasonable 4 percent long-term rate. Your portfolio of $1.3 million after 45 years would be closer to $230,000. That’s still a larger nest egg than most working Americans even dream of. With that amount of capital, you could purchase an annuity at age 65 that would give you $18,256 a year (in today’s dollars) during your retirement years.
Note that this $18,256 is almost double the $10,000 annual income we assumed at the beginning. Pick an income any income, save a proportionate amount for your retirement, and under our private system you will retire on almost double. And this is just one option: it should go without saying that a free market will produce as many different retirement plans, catering to every imaginable need and whim, as there are stars in the sky.
Will the new system have to be phased in over time? Of course: older Americans must be protected within the existing Social Security scheme. But this is no justification for continued theft from the rest of us.
The current system has given us a nation full of young people who can’t afford to save and old people who can’t afford to eat. Privatization, by contrast, would utterly eradicate poverty among the old, resolve most of the problems in our health care system, and allow people to look forward to their futures with excitement and hope. It would also be one more way in which conservatives can restore liberty and dignity to millions of Americans by eliminating dependence on the nanny state.
The President and the AARP like to use Social Security as an issue to bash supposedly uncaring Republicans, but smart conservatives this year will turn the tables. A campaign intelligently and articulately waged on this issue will be a winner because it just makes sense, and because Americans are already fed up with Washington’s giant Ponzi scheme. Those who lead the fight on this issue will rightly be viewed as champions of the working man. Those who do not will find themselves as relevant as so many busts of Lenin.