14 Oct 2004 Paying for Social Security Partial Privatization
During last night’s debate, President Bush was asked how the federal government would find the funds to pay current retirees’ Social Security benefits if younger workers were to be permitted to privately invest some of the funds they presently pay in Social Security taxes.
The New York Times has asked the same question. I have taken a stab at answering it:
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.
Maybe Social Security, which many people now believe is destined for bankruptcy, needn’t be insolvent after all.