How much is this going to cost? Reform always costs money. But it doesn't necessarily mean that the change in the program is the best way to spend it. Two things should happen first. If the solvency of the program is at stake, Congress should look elsewhere for money. For decades, they have been dipping into the Social Security surplus - and yes, even during this age of less workers supporting increased retirees, there is still an estimated $500 billion in surplus received through payroll taxes - and leaving IOUs. Congress should pay those IOUs back instead of legislating them away.
That would, by default, expose the folks in Washington to fiscal policy that would be embraced by the nation. Changing the way our elected officials do business would have a ripple effect throughout the economy by encouraging savings. Unfortunately, they would have to borrow money to make up for their previous transgressions.
The estimated cost for dismantling the program - and do not kid yourself on this one, once the change is begun, conservatives will continue to take the program apart until it does not resemble the current system in any way - over $2 trillion. And that is just for starters.
This was recently evidenced by two announcements from the White House. The first from Gregory Mankiw, the chairman of the Council of Economic Advisers was quoted during a conference on tax policy : "There are no free lunches here", and the second from the President himself: "We will not raise payroll taxes to solve this problem".
Creating personal accounts will not decrease the national debt even as more is created to change the program. National savings, now at an anemic .02% will not change without some sort of increase in debt. In our current model of economic health, savings, while worthy, is not something that is encouraged.
In other words, the more we save, the more debt will be needed to make up for the shortfall under current economic conditions. A shift to a savings based society will have short term budgetary issues as money for expansion dries up.
The President is quick to point out the advantages of Chile's reform of their social system in 1980 as the model for our reformation. But not so quick. There were several things in place when the program in that country shifted.
The Chilean government tied this changed to "one-time" government bonds with costs spread to future generations, a residual payroll tax, governmental privatization of many state run industry and a deliberate surplus that was created before the reform could be enacted to help pay for the change. None of these conditions are available to us.
It probably more apt to compare our efforts to Argentina, whose national debt ballooned because of their effort to borrow to fix a debt problem in their social system. The bottom line is that raising taxes is the best way to fix the system as proposed by the President.
Would you be able to invest if your retirement was your responsibility?
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