The Money is Yours
But the Feds won’t let you invest Social Security dollars

THE federal government’s 1936 Social Security pamphlet said Americans would never pay more than three cents on each dollar earned, up to $3,000 a year. Today, that would amount to a maximum payroll tax of $90 instead of our actual $6,000 each year. It also promised that the U.S. government would "set up a Social Security account for you," and that "the check will come to you as a right."
Of course, there is no account for you and the Supreme Court has twice ruled that no property right exists to our Social Security contributions and that these taxes are to be paid into the general treasury like any other general tax. Had Americans known the maximum tax would grow to today’s $6,000, the Social Security Act might never have been enacted.

Two years ago, two Democratic senators, New York’s Pat Moynihan and Nebraska’s Bob Kerry, proposed that employees be allowed to place a portion of their Social Security payroll taxes into personal savings accounts. Moynihan reported that a worker spending 45 years (average working life) at Bethlehem Steel could retire with an estate of a half million dollars. What’s more, the retiree’s family could inherit this investment. Republican presidential candidate George W. Bush presently proposes a similar approach.

Why would these leaders want to "mess with" Social Security, a very politically dangerous move? Because a system crisis looms large in 20 years if no steps are undertaken now. Our present system relies on the ability and willingness of the working generation to subsidize current retirees. The imbalance between revenues (produced by a declining ratio of workers to retirees) and benefits will become acute when baby boomers reach retirement age.

It is unacceptable to continue raising this burdensome payroll tax on employers and employees. Nor is it acceptable to adopt Bill Clinton’s 1999 State of the Union proposal, which included the socialist idea that government invest these taxes in the financial market, giving government ownership in publicly-traded corporations.

Individual investment in the financial market is another matter. Eighty million Americans already invest in stocks and bonds. This "investor class" recognizes the seven percent gain (average annual stock market yield over the past 50 years) as a more secure and rewarding provision for their retirement.
Moynihan and Bush stress that investing a portion of Social Security contributions will be purely voluntary. Anyone who chooses can continue putting all their payroll taxes into Social Security. No one receiving Social Security or near retirement age would be affected.

Is "partial privatization" risky? First, what is more risky than the present management of a program scheduled to implode in 20 years? Throughout the history of the stock market (one of America’s central economic institutions whereby capital is raised and allocated to productive uses), a broad and balanced portfolio of blue-chip stocks has never lost money over any 20-year period.

Government workers already have the option of putting their pension contributions into stocks and bonds. We deserve the same opportunity as government bureaucrats to create some personal wealth. Americans tend to make better investment decisions than their government.

More government borrowing to pay future benefits, or continually increasing payroll taxes, ignores the problem. Prudent investing rules could maintain a "safety net." Private investment lessens dependency on government – a dependency fostered by politicians for decades to frighten older Americans and secure their votes. Courageous leadership is necessary on this crucial domestic issue.

Americans remain trapped in a government system with record-high payroll taxes and very low returns that cannot be invested or inherited. Some form of privatization is far outpacing state-run pension systems in many countries around the globe, including Great Britain. The Heritage Foundation reports that many workers are choosing to leave top-heavy government systems and are realizing equities far beyond the government systems. Is the U.S. acting like a Third World country with an outmoded, inadequate system while other countries invest in the future?

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