Private Accounts & Their Impact
The President has proposed allowing wage earners to divert a portion of their earnings away from Social Security and into private/personal accounts where the wage earner would choose which investment vehicles he or she thinks would provide the best return for their money.
There are several points to be made about this:
- Private accounts do absolutely nothing to address the problems Social Security faces. In fact, private accounts make it worse. Social Security would have even less money to pay promised benefits and the year the trust funds would be exhausted would come even sooner than predicted.
- The government will have to borrow money to replace the diverted payroll taxes. More borrowed money means more interest to be paid back. Who pays? All Americans, but especially younger people.
- Americans already have ample opportunity to invest some of their own money in the stock market, etc. Many employers offer 401k plans. Even smaller businesses can offer SIMPLE IRA plans. Individuals can opt to set up individual IRA plans and control how aggressive they want their money invested. To lead Americans into thinking that unless we drastically alter Social Security individuals’ hands are tied and prevented from personally investing is simply false.
- Since Social Security isn’t only retirement insurance, any weakening of the program means Social Security will be less able to provide disability benefits and benefits to children and spouses.
- Finally, there is the cost of the transition. In order to cover the transition costs of moving to private accounts while at the same time paying benefits under the current system, an additional $4.9 trillion will have to be borrowed. From whom? Likely we would need to increase our debt to foreign countries. Again, who ends up paying for these loans and the huge amounts of interest? Younger Americans.