Spring Break
Why social security matters
Mike Hubbard
Issue date: 4/4/05 Section: Commentary
In 2041, about the time today's college students are eligible to collect Social Security, the system will run out of money. Thereafter, Social Security will only be able to pay out what it takes in and this means an estimated 27 percent reduction in its real value.
In 2004, Social Security tax revenue was $658 billion and the benefit expenses totaled $493 billion. The difference between the two is invested into government securities via the Social Security Trust Fund. In other words, the U.S. government spends excess Social Security payroll taxes and gives the Social Security Trust Fund Treasury Bonds in return. Starting in 2017, Social Security expenditures will exceed revenue and funds will need to be drawn from the Trust Fund. At that point, Social Security benefits will rely on the government paying its debt. If the government were to default (refuse to pay) its debt, Social Security would encounter shortfalls much sooner. If the government manages to not default, other federal taxes or a transferal of national debt (the Social Security-owned portion) to publicly held debt would pay for Social Security. The only difference between 2017 and 2041 is that until approximately 2041 the government will, on paper, owe money to the Trust Fund.
Complacent Congressmen, mainly Democrats, are willing to table the looming threat to Social Security for the next generation. If action is not taken, it will mean further increases in the payroll taxes (tax which funds Social Security) to fund the incompetent management of Social Security resources.
A simple solution to Social Security is Bush's semi-privatization plan. Under his plan, Social Security would remain the same for anyone born before 1950. However, those born after 1950 would have the opportunity of a personal account to utilize as supplemental income. These personal accounts are a step into turning Social Security into a forced savings plan. These accounts would be tangible assets retirees can spend or leave to their children. To increase stability the accounts can be diversified into a mix of stocks and bonds, which will have a higher rate of return than the current Trust Fund. The personal accounts should be diversified and invested conservatively. Otherwise, people will unwisely invest and lose their nest egg. According to Bush's plan, a person who earns an annual average of $35,000 would save approximately a quarter million by the time they retire.
In 2004, Social Security tax revenue was $658 billion and the benefit expenses totaled $493 billion. The difference between the two is invested into government securities via the Social Security Trust Fund. In other words, the U.S. government spends excess Social Security payroll taxes and gives the Social Security Trust Fund Treasury Bonds in return. Starting in 2017, Social Security expenditures will exceed revenue and funds will need to be drawn from the Trust Fund. At that point, Social Security benefits will rely on the government paying its debt. If the government were to default (refuse to pay) its debt, Social Security would encounter shortfalls much sooner. If the government manages to not default, other federal taxes or a transferal of national debt (the Social Security-owned portion) to publicly held debt would pay for Social Security. The only difference between 2017 and 2041 is that until approximately 2041 the government will, on paper, owe money to the Trust Fund.
Complacent Congressmen, mainly Democrats, are willing to table the looming threat to Social Security for the next generation. If action is not taken, it will mean further increases in the payroll taxes (tax which funds Social Security) to fund the incompetent management of Social Security resources.
A simple solution to Social Security is Bush's semi-privatization plan. Under his plan, Social Security would remain the same for anyone born before 1950. However, those born after 1950 would have the opportunity of a personal account to utilize as supplemental income. These personal accounts are a step into turning Social Security into a forced savings plan. These accounts would be tangible assets retirees can spend or leave to their children. To increase stability the accounts can be diversified into a mix of stocks and bonds, which will have a higher rate of return than the current Trust Fund. The personal accounts should be diversified and invested conservatively. Otherwise, people will unwisely invest and lose their nest egg. According to Bush's plan, a person who earns an annual average of $35,000 would save approximately a quarter million by the time they retire.