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Joseph Huff-Hannon
"Only 50 percent of today's workers have 401Ks, or supplemental savings invested in the market. This is an opportunity to give these workers a taste of ownership," Brannon said.
Social Security is financed out of a trust fund, not from the general revenue stream of sales, or individual and corporate taxes that provide the government with most of its funding. This trust fund is financed by a 12.4 percent payroll tax that is levied on all paychecks, on income up to, but not exceeding $90,000 a year. The program is partly a "pay as you go" arrangement whereas retirees today receive Social Security checks financed on current payroll taxes of those in the workforce, not based upon what that recipient paid into the program during their own career.
Payroll taxes from today's workforce exceed the benefits currently being paid out by Social Security, and the surplus is pooled in the form of U.S. Treasury bonds. That is to say that unlike the rest of the Federal government, which operates in deficit at present, the Social Security fund is safely in the red. It is also a model of efficiency, with less than 1 percent of its funds spent on administrative costs.
"Ultimately, we hope to have a fully funded system similar to what exists in Chile," says Brannon. "The current system is very vulnerable to demographic change. Today the ratio of workers paying in to the system versus retirees collecting benefits is 3 to 1. In 20 years that ration will be 2 to 1, and will continue to get worse. The system is unsustainable as is, and increasing payroll taxes on younger workers would just be more of a disincentive to work," he said.
So if the true state of Social Security is that it produces a surplus, why the crisis? It depends upon whom you ask. For ideological conservatives, the existence of Social Security is a crisis in and of itself. The Cato Institute has been pushing for reform for 25 years on the basis that the government is fundamentally too inept and untrustworthy to guard over the retirement benefits of so many people. The alternative, of course, would be to turn over that function to the private sector.
This is the ideology underlying President Bush's campaign to promote an "ownership society" by offering current workers the option of investing some of their payroll taxes in the stock market. This model, or variations thereof, has been used in some other countries (Chile, Argentina, Great Britain) with mixed results. While those case studies would make interesting fodder for another investigation, the relevant point here is that boosters of privatization argue not only that the program is in crisis, but also that it is inherently flawed, crisis notwithstanding.
The shame in Social Security today, according this administration's ideology, is that tens of billions of dollars in wages are diverted away from potential investment into the Stock Market and instead is managed by the government. All that money, and nobody can use it to make a profit.
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