Thursday, June 23, 2005

The End Of Private Social Security Accounts 

One reason that so many people have been against private social security accounts is the so-called transition costs of going to the new system. Some have estimated this expense at over 2 trillion dollars. How to get around it? Well, if you are the U.S. Congress you just fund it with money that doesn't exist. And you do it in a such a complicated manner that you hope no one will be able to figure out what is going on. Try just for fun following this explanation:

This year, Social Security will bring in $69 billion more in taxes than the system pays in benefits. Congress will borrow that money to fund other programs and then send $69 billion worth of Treasury bonds to the Social Security Administration. Those bonds would be cashed to finance benefits once the system slipped into deficit.

Under the new proposal, those bonds would go to private investment accounts that would be opened for workers unless they chose not to participate.

After a holding period, holdings could be diversified into other options such as stocks, based on a plan to be submitted to Congress by an administrative board that would manage the accounts. The balance of the accounts, plus interest, would eventually be subtracted from a retiree's traditional Social Security benefit. The system, as proposed, would operate only as long as Social Security ran a cash surplus -- or just more than a decade. The accounts would remain, and they could be inherited.
See what I mean? Congress, of course, is thrilled beyond belief with what its members have crafted. As quoted today in the Washington Post by Mike Allen and Jonathan Weisman:

An aide to House Speaker J. Dennis Hastert (R-Ill.) called the bill "a great start," and House Majority Whip Roy Blunt (R-Mo.) called it "an excellent first step." Rep. Eric I. Cantor (R-Va.), the deputy House majority whip, called it "a breakthrough day."
Should I be so bold to ask why it is that if social security is bringing in more than it is spending right now we don't use that money to build up the retirement fund? The reason is that Congress is now using this money for other things. The result of my suggestion would be that our representatives would then have to cut spending by billions of dollars per year to try and balance the federal budget.

Strike one for liberty.

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