In his 2008 Budget Proposal President Bush has included funding for Social Security Private Account starting in 2012. Workers under 60 will have the option of diverting up to four percent of their earnings from payroll taxes into private accounts. This will let Americans' retirement savings to grow over time and not be subject to the whim of politicians.
Private accounts will allow Social Security to live up to its original purpose, to make sure Americans can all enjoy a poverty-free retirement. By investing their savings workers will be able to realize a far better future then they can under the current system.
The returns on savings invested in stocks will give workers tens of thousands more to retire on and will give seniors a higher standard of living. Many developed nations, such as Britain and Sweden, have incorporated private accounts into their national retirement savings programs.
If invested in a broad based index fund there is, assuming that previous market data holds true, practically no risk over a 40-year period and workers will get an average five percent return on their investment.
This is far better than the current Social Security system that will offer a negative return to current workers.
The New York Stock Exchange has always grown over time. As a worker gets closer to retirement age money can be taken out of stocks and put into bonds. If the stock markets fell over a 30-year period we would be in a depression larger than that of the 1930s.
Social Security is currently set up like a pyramid scheme. Americans pay into the system with the understanding that future workers will pay them back.
There is nothing secure about this system; future generations could abolish the program and leave millions of Americans with no retirement savings.
In Flemming v. Nestor (1960) the Supreme Court ruled that Social Security benefits are not a contractual right; Congress can cut benefits at any time. Private accounts are more secure and offer far larger rewards. Individuals will not be allowed to pick individual stocks, but instead will chose from several funds invested across the stock market.
Millions of Americans who work for Federal, State and Local Governments, exempt from Social Security, have their savings invested in the stock market. These programs are not risky or dangerous and have allowed government workers to have a quality retirement.
Personal accounts will give all Americans the opportunities that they have.
To pay for benefits while private accounts are set up the Federal Government will need to go further into debt. The government will also not be able to spend the money in the Social Security Trust Fund and will likely need to borrow more money from the general population to compensate.
These are significant costs. They are part of the larger problem, however, of a dysfunctional government that spends far more then it collects in taxes. They are also short term, transitional costs.
Once workers with private accounts start to retire there will be no need to borrow to pay benefits. However, the benefits of private accounts, lower taxes and a better retirement for seniors are long term and will benefit retirees for generations. Investing the money in private accounts will also be a boon to the economy, as far more capital will be available to public companies.
To minimize the transitional costs of private accounts President Bush has proposed indexing the benefits of the highest wage earners to inflation instead of wages. Since wages grow at about 1.1 percent per year more than inflation this would result in relatively higher benefits for lower income workers then for higher income workers. This modest proposal to make Social Security more progressive should be supported by Democrats. Looking holistically, there are few programs more regressive then Social Security - low income workers pay a much higher percentage of their wages then the highest income workers.
Social Security will start running a deficit in 2017 and the Social Security Trust Fund will run out by 2040. There is no denying the fact that Social Security will need to change. The only question is if it will mean higher taxes, lower benefits or long-term planning with private accounts.
Congressional Democrats want, for whatever reason, to ignore this looming problem. They are content to scare seniors, telling them that Bush wants to get rid of Social Security, and do nothing to fix Social Security.
Private accounts are safe and can guarantee all Americans a quality retirement, something the current Social Security System does not come close to doing.
Xander Zebrose is a freshman who has not yet declared a major.
