Social Security Dupery
Byline: Peter Ferrara, SPECIAL TO THE WASHINGTON TIMES
The liberal response to President Bush's call for Social Security reform is to argue preposterously there is nothing wrong with the current system. Try telling that to single retirees, who will on average receive a pitiful monthly benefit from the program this year of only $920.
That reflects a fundamental problem that demands immediate, fundamental reform. The problem is that Social Security is no longer a good deal for working people today.
Of course, Social Security is going bankrupt, contrary to the nonsense liberals like Paul Krugman are arguing. That means in the future Social Security will not even be able to pay the equivalent of $920 today.
But that is only half the problem. The other half is that even if Social Security could pay all its promised benefits, those benefits now represent a low, below-market return on the taxes workers and their employers pay into the system. Workers would get much higher returns and benefits if they could save and invest their payroll taxes in personal accounts.
Studies by the Cato Institute, the Heritage Foundation and others show that, for most workers today, the real rate of return Social Security would pay, counting all of the promised benefits, is 1 to 11/2 percent. For many, it would be zero or even negative. A negative return is paying a bank to hold your money rather than receiving interest.
In contrast, the long-run real return in the stock market going back before the Great Depression is at least 7 percent to 71/2 percent, and arguably more. The long-run real return on corporate bonds has been 31/2 percent. For a lifetime of savings and investment, this adds up to an enormous difference in benefits that could be paid to working people.
This is illustrated by the legislation introduced by Rep. Paul Ryan, Wisconsin Republican, and Sen. John Sununu, New Hampshire Republican. Their bill would allow workers on average to invest in personal accounts just over half of the total payroll tax of 12.4 percent, or roughly the employee share of the total tax.
An average-income, two-earner couple with such an account over their entire careers investing half in stocks and half in bonds and earning only standard long-term market returns would retire with a personal account of about $670,000 in today's dollars. …