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Faced with what seems to be an increasing level of misleading rhetoric about conservative positions on public policy issues, The National Center for Public Policy Research has resolved to help bridge the gap between rhetoric and reality.
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Published by The National Center for Public Policy Research
Social Security: Is the New
York Times Right to Call the President's Plan "Terrifying"?
Mr. Bush has long advocated that younger
workers be allowed to set aside part of their Social Security
tax payments for private investments in stocks or bonds. He has
never explained how he would pay for such a plan. The Social
Security taxes that come in are used to pay for the benefits
of those already retired. If part of the current workers' money
is redirected without corresponding tax increases, the difference
would have to be made up through budget cuts or - far more likely
- a disastrous addition to the amount of debt the government
continues to roll up every day."
Conservatives, including President Bush, are intrigued by the last option.
In coming years, the number of retirees
dependent upon Social Security will increase relative to the
number of persons paying Social Security taxes. By the 2040s,
less than two workers will be paying each retiree's Social Security
benefits. (Today the ratio is 3.3-1. 1)
The last option is referred to as partial privatization.
In such a system, a portion of each worker's 12.4 percent payroll tax for Social Security would be diverted to a savings plan where it would earn interest. Later, when that worker retired, he would draw on the sum, reducing his need to be dependent upon those then in the work force. If he died before depleting the account, he could leave remaining funds to heirs. If the money ran out, he could draw on public resources, as retirees now do.
The New York Times complains that President Bush did not explain how he would pay for partial privatization. Perhaps not for the first time, it is thinking backwards. Partial privatization is designed to reduce the draw on the federal treasury, not to expand it.
Workers today are contributing more money than Social Security needs. The excess tax funds are spent on other things, such as National Public Radio, U.N. dues, the National Endowment for the Arts and other federal expenses that the New York Times supports, but conservatives often do not.
Enacting partial privatization now would reduce the amount of dollars available for discretionary programs the New York Times likes, but workers could pay less Social Security taxes now without current retirees losing a penny in benefits.
What if today's workers continued to
be taxed the same 12.4 percent, but the excess amount, or some
similar sum (such as 3 percent of payroll), was conservatively
invested for the worker's own use after retirement? The answer:
Even without benefit cuts, workers wouldn't need so much money
from Social Security.
Issue Date: February 6, 2004