From Libertarian Wiki

Social Security is an involuntary social insurance program enforced by the United States federal government. The socialistic program was one of the "hottest" topics under consideration in the 2004 U.S. presidential election. In early 2005, the Administration of George W. Bush began a campaign to give Americans the right to voluntarily opt out of the system and seek personal retirement accounts by depositing their payroll taxes into personally owned and invested accounts similar to 401(k) plans or IRAs.

Currently, workers pay a 12.4 Social Security payroll tax (FICA) on all wages up to $87,900, and Congress sets their retirement benefits. Under reform, workers would be able to deposit that 12.4 percent into their personally owned accounts. Workers and/or their employers would select a company to manage and invest that money. Over time, a worker's account would grow in value, culminating in a substantial nest egg. Once a worker had accumulated sufficient retirement funds, she could purchase a lifetime retirement annuity, which would pay a monthly retirement check.

Contents 1 Social Security and African-Americans 2 Social Security and All American Women 3 Why Social Security needs reform 4 The benefits of personal retirement accounts 5 How Social Security Reform would affect the economy 6 More info

Social Security and African-Americans

Social Security is a bad deal for all Americans, but African-Americans often get the worst deal. This is because African-Americans pay too much into Social Security while working and get back too little in retirement benefits to make Social Security a good deal. So they also have the most to gain from moving to a system based on individual ownership and private investment.

How much you get from Social Security depends partly on how long you live, and African-Americans generally have lower life expectancies than other groups. When a black man reaches age 65, he is expected to live only another 13.9 years, almost 2 years (24 payments) less than a white male. The RAND Corporation concluded that, because of differences in life expectancies and marriage rates, on a life-time basis the income transfer from blacks to whites is as much as $10,000 per person.

African-Americans often do not have enough money left over after paying taxes to save for retirement. Elderly African-Americans are much more likely than other groups to be totally dependent on Social Security for retirement income. Social Security's benefits are simply not enough: the poverty rates among black elderly women is 29 percent-almost twice the rate for all women.

African-Americans would be among those with the most to gain from transforming Social Security into a system of individually owned, privately invested accounts, similar to IRAs or 401k plans. Social Security reform must be looked at in light of the alternatives. Incremental reforms to prop up the existing system-such as raising payroll taxes or cutting benefits-could disproportionately harm African-Americans.

Social Security and All American Women

According to a study by researchers at Harvard University, virtually every woman-single, divorced, married, or widowed-would probably be better off financially under a system of personal retirement accounts, the earnings of which could be shared by spouses. The researchers studied 1,992 actual women who retired in 1981, and compared their Social Security benefits to what they would have received from a personal account that returned 6.2 percent. Every woman studied would have been as well off or better off with a personal account. Not one woman was worse off under a voluntary system. On average, personal accounts would have provided the single women with 58 percent more than Social Security and wives with 208 percent more. Those higher returns are critical to women's well-being in retirement. Today, Social Security leaves 13.6 percent of women in poverty: the good news is that the research shows that it doesn't have to be that way. In addition, voluntary account plans typically include a safety net that can ensure that every woman's retirement income is at least at or above the poverty line.

Why Social Security needs reform

Social Security is going bankrupt. The federal government's largest spending program, accounting for nearly 22 percent of all federal spending, faces irresistible demographic and fiscal pressures that threaten the future retirement security of today's young workers. According to the 2003 report of the Social Security system's Board of Trustees, in 2018, just 14 years from now, the Social Security system will begin to run a deficit. That is, it will begin to spend more on benefits than it brings in through taxes. Anyone who has ever run a business--or balanced a checkbook--understands that when you are spending more than you bring in, something has to give--you need to start either earning more money or spending less to keep things balanced. For Social Security, that means either higher taxes or lower benefits.

But even if Social Security's financial difficulties could be fixed by raising taxes or cutting benefits, the system would still need to be reformed because it is a bad deal for most Americans. Social Security simply costs too much and pays too little. Social Security's rate of return on payroll taxes is dismal (about 2 percent) and declining. Workers deserve a retirement system that will make the most of their money.

The benefits of personal retirement accounts

• Higher Returns and Greater Benefits: Even the most conservative investors would accrue substantial assets during their lifetimes through privately invested accounts, yielding far more than Social Security promises in retirement income.
• Private Property: Individuals would own their personal retirement accounts. Accumulated assets could be used at retirement and/or passed on to family members.
• Creation of Wealth: Low-wage workers would become shareholders in the U.S. economy and, through private investment and participation in the market, accumulate wealth.
• Individual Empowerment: Individuals would control their retirement security, and they would see their accounts grow as a result of hard work.
• Improved Economy: Economists believe that the overall economy will benefit from an increase in savings and investment resulting from this system.

How Social Security Reform would affect the economy

Social Security Reform would lead to an increase in national saving, with hundreds of billions of dollars invested through individual accounts every year. Those investments, in turn, would substantially increase national investment, productivity, wages, jobs, and overall economic growth. In addition, Social Security Reform would amount to an effective cut in payroll taxes, boosting productivity and employment. Martin Feldstein, of Harvard University, estimates that modernizing Social Security has a value of $10-$20 trillion to the U.S. economy and would permanently increase our GDP by 5 percent. That would translate into at least one million new jobs and an increase in annual income of $5,000 for a family of four.

More info

Social Security is a bad investment because the money paid into the system is presently invested in low-yield government bonds, even though higher-yield, higher-risk investments are generally considered more appropriate for young workers. As a pay-as-you-go system, Social Security relies on the contributions of current workers to fund payments to current retirees. Thus, in the absence of tax increases, the return on investment that retirees can expect to receive is limited to the growth of real wages, which have increased at an average rate of 2.6% per year since 1960. By comparison, corporate capital has earned an average 9.3% return on investment over that same period.^[1] This suggests that workers could, on average, afford a better retirement if they could take the money they are currently putting into Social Security and invest it in stocks and bonds instead.

Millions of Americans are saddled with credit card debt bearing 19% or 24% annual interest rates and mortgage payments consisting primarily of interest rather than principal curtailments. The mandatory Social Security payroll withholdings leave them with less money to pay down their debts, effectively earning them a negative rate of return. This is not the way to fund a secure retirement.

A common argument for Social Security's existence is that people will not save for retirement unless they are forced to do so. But if workers and their employers did not have to pay 12.40% of wages into the Social Security system, they would have more money available to fund higher-yield retirement packages.

Many workers will not live long to get back all the money that they paid into the system. In fact, because the poor have shorter life expectancies, they are less likely to collect. According to the Cato Institute, a single worker born in 1965, paying the maximum in Social Security taxes, and retiring in 2030 would have to live to age 90 to receive enough Social Security payments to make up for their contributions.^[2] In a capitalist system in which workers had property rights over their savings, if someone died before using all of his savings, he could pass on the money to his heirs. They in turn might use the money to fund their own retirements.

The private sector can fund an adequate retirement for those who do not save up money themselves. In many cases, elderly people can be supported by their children or other family members. Charities can also provide some funding.

The federal government should abolish Social Security in one fell swoop, ending all taxes and stopping all payments immediately. From the beginning, Social Security was more in the nature of a welfare system than a bona fide retirement system. Many early Social Security recipients paid little or nothing into it; their payments were funded by younger generations in an arrangement similar to a pyramid scheme. The early recipients who profited from this system have long ago died, and there is no way we can get back the money from them, any more than we can get back the money that government has paid to welfare recipients. We should just write it off as a loss.

Some might argue that it is unfair to not get anything back after having paid into it for so long. But the only way that we can get Social Security payments is by forcing succeeding generations to continue paying into this inherently flawed system. To do so is essentially to force young people into a form of partial slavery in which the fruit of their labor is forcibly taken from them to pay into a system which they had no part in creating and in which they do not necessary want to participate.

People often claim that Libertarians are being selfish in wanting to abolish programs such as Social Security. In reality, shutting down this misery- and hardship-producing system is a noble goal that demonstrates responsibility and integrity. Rather than forcibly taking the incomes of others in order to recompense ourselves for the Social Security taxes that were wrongfully extracted from us, we can free future generations from this onerous burden.