RALEIGH – It’s not Christmastime, but pardon me for thinking about the classic Nat King Cole song as I watched the hoopla that greeted President George W. Bush Thursday during his visit to Raleigh to talk up private accounts and Social Security reform.
First, I thought of chestnuts, as in old, predictable overreactions to talk of Social Security changes. There were apparently protestors out in front of the event venue, the BTI Center in downtown Raleigh, holding up signs that offered profound insights such as “Hands off my Social Security.”
Hmm. Private accounts would be entirely optional for younger workers. For retirees and 50-somethings, they wouldn’t even be an option. A more meaningful sign would be “Let me get my hands on my Social Security,” but as the protestors don’t believe individuals should be in control of their own financial lives, the sentiment would be incongruous.
Other old chestnuts in this area include: 1) there is no immediate problem because the Social Security trust fund will last into the mid-21st century, 2) private accounts will make the funding problem worse rather than better by diverting payroll taxes out of the trust fund, and 3) administrative expenses will eat up most if not all of whatever higher investment returns recipients might derive from their accounts.
Consider these nuts roasted on an open pyre. First, the trust fund is a rhetorical device. It’s not a financial asset. It is a liability, a claim on future federal tax revenues that must either be paid starting in about 15 years by raising taxes, reducing spending, or issuing more debt. If the trust fund didn’t exist, then starting in about 15 years we’d have to raise taxes, reduce spending, or issue debt to pay promised claims. See, it doesn’t make any financial difference.
Second, private accounts are not designed to fix the structural problem within the current pay-as-you-go system. Rather, they would replace – actually, more than replace – the Social Security benefits that we know today cannot be paid at current tax rates. That is, those who opt into accounts will be giving up a Social Security payout proportionate to the share of payroll tax they decide to route into their accounts. The system’s future liabilities would decline along with the lost revenue. Because investing in our capitalist economy over time is more lucrative than “investing” in government via treasuries, those opting in are highly likely to be significantly better off. There are other reasons for favoring personal accounts, too, but you can read about them elsewhere.
Finally, administrative expenses for the new Social Security private accounts needn’t be high. Careful analysis shows that for the types of funds to be allowed under the investment system, the fees won’t eat much into the earnings over time. As with many such questions, the gut check is this: if stocks are so risky and costly to buy and hold, why do corporate executives, professionals, college professors, and (to drop down a couple of levels of acumen) members of Congress tend to own so many of them?
As for Jack Frost, I hear he was nipping at the nose of many an attendee who stood outside for hours to get into the Bush event. The protestors must also have felt the cold, but I assume that the white-hot anger of their righteous indignation kept them warm enough inside.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.