THE NATION'S PULSE: It's About as Radical as IRAs
Malpass, David
THE NATION'S PULSE, David Malpass It's About as Radical as IRAs Social Security Reform Should Sell Itself T'S TEMPTING TO CALL SOCIAL SECURITY REFORM dead and move on. That's what...
...For now, every election has to be first a vote on the size of Social Security payments, then a vote on other issues...
...shouldn't pass up this opportunity...
...A sound reform will be the oppositeabout as radical and risky as IRAs, but with big positive impacts on economic growth and jobs...
...improve the benefit formulas...
...Increasing the earnings cap would just extend the unfairness to more workers...
...Under the current system, Social Security outlays will soon grow to 130 percent of Social Security receipts...
...economy and financial markets...
...Reducing the tax wedge by allowing workers to invest it would cause more jobs and a higher average U.S...
...The current Social Security system is an unfunded liability, meaning there are no investments to back up future payments...
...4. Jobs...
...In a February 28 Wall Street Journal article, Jeremy Siegel, one of the world's experts on long-term equity performance, is quoted forecasting real equity returns (before inflation) at 6 percent per year over the next 44 years, with bonds expected to yield substantially less...
...Workers will be under Washington's thumb for life, first paying tax rates set in Washington, then hoping for big checks...
...It is unfair to those, whether the frail or minorities, who tend to die earlier and lose their benefits...
...Otherwise, current law will force millions into higher tax rates, increase the cost of capital, and undo many of the economic and job gains of recent years...
...This creates an immense risk to the young-that a future government will want to spend less on them...
...Reform would partially fund retirement benefits with real investments, put workers names on their accounts, pave the way to full funding, relieve the growing generational strains from a pay-as-you-go system (FDR himself said it should only last for a limited period), add to economic growth and jobs, and correct some of the incomeand health-related unfairness in the current system...
...out of one of the entitlement boxes, a reform that increasingly characterizes mature democracies...
...is the high tax rate for an unfunded liability that discourages work, penalizes early 5. Fairness...
...Here are eight compelling reasons to reform Social Security now: 1. We must begin funding the Social Security commitment...
...The message it will send to ourselves and the world is invaluable: that we can materially improve our fiscal condition by relying on ownership more than on the federal government...
...The best route is to complete a solid Social Security reform and then clear the congressional deck for tax battles...
...That's what I read in the newspapers every day...
...There's no contract...
...The oddity in the current debate is that it compares the notional benefit formula in a shaky, completely unfunded system to private sector returns and somehow concludes that the latter is more risky...
...6. Less risk, more benefits...
...Medicare...
...The growth aspects of Social Security reform would narrow this gap...
...THE NATION'S P U L S E D A V I D M A L P A S S It's About as Radical as IRAs Social Security Reform Should Sell Itself T'S TEMPTING TO CALL SOCIAL SECURITY REFORM dead and move on...
...The current system is an unfunded liability in which Social Security taxes fund current outlays...
...At most, the current benefit system offers an assumed return of 3 percent per year, but that is completely dependent on the beneficiary living long enough to collect, Washington enacting a huge tax increase to pay the benefits when the trust fund runs out, and then deciding to protect full Social Security payments from other government programs like death, a and pays a low return...
...growth rate, a key yet unspoken selling point for Social Security reform...
...There isn't any investment associated with the taxes...
...A reform process also offers a unique opportunity to change the benefit structure, perhaps by indexing initial benefits to inflation rather than wage rates, and adding benefits for lower income workers...
...It's unfair to those who want to work past 62 or start working young, since the benefit formulas (unlike a personal account) give minimal extra benefit for working more years...
...But the idea underlying it is too good, progrowth, and saleable to drop...
...And it benefits the young by giving them concrete ownership in a growing part of their retirement savings...
...It benefits the middle-aged by letting them own part of their retirement savings, while improving the country's growth, jobs, stock market, and fiscal outlook...
...Personal accounts clearly offer the likelihood of more benefits than the current system, without the risk of the government voting them away...
...Washington happily spends all the proceeds and asks for more...
...2. Social Security reform will mean less dependence on Washington...
...April 2005 THE AMERICAN SPECTATOR 35...
...8. Big step to tax reform...
...Opponents of Social Security reform have no plan, nada, to fund the future payments or allow workers to invest their Social Security taxes...
...The private sector doesn't promise future benefits without funding them, and the government shouldn't...
...In sum, Social Security reform should be selling itself...
...When you tax something less, you get more of it, in this case jobs...
...economy, breaking the U.S...
...The problem isn't the earnings cap...
...The size of the trust fund could be raised or lowered or zeroed out through legislation, making it clear that the trust fund is simply a figment of Washington's financial imagination...
...The benefits of reforming the system would be immense for the U.S...
...Structural reforms are the holy grail of market-based economic development, the rare time in history when a country materially improves its long-term 34 THE AMERICAN SPECTATOR April 2005 D A V I D M A L P A S S economic prospects...
...Our democracy would function better if we got a statement showing our retirement savings free and clear of Washington...
...Retirees now rely on Washington's largesse for their checks...
...The U.S...
...One important reason to reform Social Security is to The problem...
...7. Fiscal soundness, better benefit structure...
...David Malpass is chief economist for Bear Stearns...
...And it's unfair to those with earnings less than the $90,000 earnings cap, because they bear the full brunt of the high tax payments going into Washington's fiscal black hole...
...Retirees pay lobbying associations millions in dues to increase the odds that their checks will continue and grow...
...3. Social Security reform, because it is structural in nature, would be a major pro-growth change in the operation of the U.S...
...In today's system, the government spends all the payroll taxes and decides the formulas for paying benefits...
...The current Social Security system imposes a gigantic tax on jobs-12.4 percent of pre-tax income including the employer and employee portions...
...It benefits the elderly by recommitting the country to their existing payments and improving the system for their children and grandchildren...
...Unfortunately, the sales job has let Social Security reform sound scary to the elderly, complex to the young, and, perhaps worst of all, too radical to many voters...
...Social Security reform is arguably more important than tax reform, but that's saying a lot...
...It is the high tax rate for an unfunded liability that discourages work, penalizes early death, and pays a low return...
...It's vital for growth that Washington spend time legislating new tax rules...
...How politicians can be proud of the current system is beyond me...
Vol. 38 • April 2005 • No. 3
