January 7, 2005
DON'T YOU DESERVE A FREE LUNCH?:
No, Virginia, There Are No 'Transition Costs' for Social Security Reform (Lawrence A. Hunter, Jan 7, 2005, Human Events)
The misconception that there will be new costs--i.e., "transition costs"--arises from forgetting that Social Security is already, in effect, debt-financed. Consequently: 1) Any debt sold to the public in the short term during the so-called "transition period" to pay all promised Social Security benefits simply refinances an existing liability; and 2) Refinancing Social Security's debt through personal accounts makes possible a reduction, and eventually an elimination, of Social Security's unfunded liability, which otherwise is scheduled to grow without bound.In Social Security, the current generation of workers pre-funds its retirement benefits by making contributions to the program in the form of a tax taken out of every paycheck. In exchange for this tax, the government promises to pay the taxpayer, when he retires, precisely defined benefits, which are specified in law by formula.
The amount of money paid in payroll taxes would be more than adequate to pre-fund workers' retirement benefits were it properly invested, but it is not. In effect, the federal government borrows the payroll tax payments of current workers to pay the retirement benefits to current retirees. But unlike ordinary government debt, the debt obligation owed to workers through Social Security is not quantified and memorialized by the issuance of bond, note, or bill certificates to the workers. Nor is it formally recorded as debt on the balance sheet of the U.S. government. It is real debt nonetheless.
What pundits have labeled the "transition cost," is really the short-term cash-flow crunch that will happen when workers are allowed to invest a part of their Social Security taxes in personal retirement accounts rather than loan that money to the government to pay the benefits of current retirees.
Who cares what it costs in the short term if it's sensible policy in the long? Posted by Orrin Judd at January 7, 2005 12:42 PM
The true horror the democrats are contemplating is a future where people say "New Deal, what was that?"
Posted by: M. Murcek at January 7, 2005 12:57 PMI'd like to believe that this is a sensible long-term policy, but I'm still not convinced. I think that giving people more control over their retirement accounts is a good thing, but I'm not certain that it will solve our long-term solvency problems.
Posted by: Brandon at January 7, 2005 2:39 PMCertainly allowing only 2.5% to be privately invested won't solve the problems. Hopefully we can get up to 6.5%. Even though I am no longer young (45 years old) and SS should still be ok when I retire, I still want control of as much of my SS contributions as possible.
Posted by: Pat H at January 7, 2005 2:57 PM"the democrats are contemplating is a future where people say "New Deal, what was that?""
Future, that is the present. My son knows, but he got a 5 on his AP US History test and 800 on the SAT 2. Most people under the age of 40 have no idea about the New Deal. They think Herbert Hoover sold vaccum Cleaners.
Posted by: Robert Schwartz at January 7, 2005 9:50 PM