Feeling Secure?

Social security has been one of our most successful public programs. There was a time in my lifetime when over one third of all elderly people lived in poverty. Social security has been a major reason why that percentage has been reduced today to about 12%.

There are concerns that funds paid from the Social Security Fund are projected to become greater than its revenue intake in 2030. Concern over this is legitimate. It is important that we do not overreact, panic, and make things worse.

Turing Social Security over to stockbrokers is a Wall Street dream but would be a national disaster. These financial dealers are salivating over the possible creation of hundreds of millions of new accounts if Social Security is turned over to them.

We should realize that stockbrokers make their money through transaction costs when people buy and sell stocks in their accounts. It is very possible that too many transactions will eat away the profitability of these accounts. This would be a great financial windfall to stockbrokers at great cost to American citizens.

Not only will many people invest poorly, we should note that the stock market has no guarantees even for sensible managers. There would be millions of winners and millions of losers should their Social Security accounts become invested in the stock market. That is the very nature of stock markets. The question will become what happens to the millions of people who placed their Social Security money into the stock market only to discover their investments were financial losers. Social Security exists to prevent poverty for the elderly and the disabled. Should a privatized Social Security system create such poverty, what should we do then? If we don’t assist the financial losers, the purpose of Social Security preventing financial distress is lost. If we assist the financial losers, then there is no point to privatizing Social Security as it then remains a system with a set floor of benefits.

More reasoned responses exist. If we can remove the Bush Administration and its deficit spending economies and return to the budget surplus days that existed under the Clinton Administration, we could put budget surpluses towards guaranteeing the preservation of Social Security.

Other responsible options to reinforcing Social Security exist, should they become necessary. Rather than allowing all Social Security members to become account holders with stockbrokers, we could allow the Social Security Fund to invest a portion of its resources into a portfolio. This is what most pension plans currently do. It is true that a diversified portfolio tends to earn more money in the long run than investing in bonds, as the Social Security Fund currently does. Bonds are safe and reliable, which are important factors for the Social Security Fund. If the system needs greater expected investment returns, then it will make sense to allow expert fund managers handle investing a portion of the system’s fund in a portfolio.

There are other means to keep the Social Security Fund solvent. Reducing the Fund’s pay-outs by reducing benefits hurts the very people the Fund is designed to protect, and thus is not a good idea. Yet, if there are wealthy people who do not need these benefits, reductions of Social Security funds to the wealthy, perhaps by taxing benefits paid to the rich, remains a possibility. Also, taxing employers based on the total amount of wages they pay instead of exempting them for salaries over specific amounts is another possibility to help the Fund’s solvency. This would have no direct harm to any wage earner, and any employer who can afford such highly paid employees can afford to also pay these taxes.

The best news of all is, while we consider these options, there may actually be little that needs to be done. According to the Social Security Trustees, a worse case scenario is the Fund is in excellent shape for the next 28 years. The Fund is projected to experience problems after 28 years should economic growth slow to rates in the 1.3% to 3.0% range. While the Bush Administration has harmed our economy, or national growth rate in the three decades prior to Bush averaged around 4%. If we can regain a part of past economic strength, the economy will keep the Social Security Fund afloat. First, though, the best thing we need to do to accomplish this is we need to sink George Bush in the November elections.