The Way to Save Social Security Is to Privatize It

Tuesday, 25 Oct 2011 02:22 PM

By Dick Armey

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From the FreedomWorks website.

Welcome to the new Broadway hit: The Phantom of America, starring America’s debt.

The premise of the story is that America, falling just short of $15 trillion in debt, is being dragged down the path of unsustainability.

The role of the Phantom is played by Social Security. Its true identity — massive unfunded liabilities and unsustainable growth — is masked by the rosy depiction of “security” for all generations that pay into the system. The antagonist — Washington — has shackled younger generations to the reins of the social system.

What is separating younger Americans from crossing to the path of freedom? Weight capacity.

The increasing number of baby boomers entering retirement cannot be sustained by younger generations. Privatization must make its debut, remove the mask of this evil Phantom, and restore liberty and prosperity for the future.

What constitutes the system’s shortfalls are the following:
  • Social Security is the largest entitlement program and makes up around 22 percent of the federal budget. America’s debt has reached dangerous levels — contributing to our credit downgrade from AAA to AA+.
  • Baby Boomers represent a quarter of the population of the United States. This generation produced a significantly smaller generation than their own, decreasing the amount of taxpayers supporting their retirement. In 1940, 42 taxpayers supported each retiree. Now, it is only 3.3 taxpayers per retiree — decreasing still. In order to prevent its collapse, Washington must impose more taxes or decrease benefits.
  • Social Security surpluses continue to fall with an increase in beneficiaries.
  • Social Security “Trust Fund” consists of government IOUs. Surpluses of Social Security revenue are held by the Treasury and can be used to increase spending, pay off government debt, and reduce taxes. If the money is being used for such purposes, it is not being saved.
Privatization of Social Security would scrap these shortfalls and bring individual control back to the table.

Chile adopted this approach in May of 1981 and results have been more than exceptional. Individuals have direct control over their accounts — allowing them to switch between competing insurance companies, desired age of retirement, and plans that best fit their circumstances.

Results from privatization include continual increases in economic growth, generated surpluses without raising taxes or interest rates, an increase in pensions by over 50 percent, and a 5 percent unemployment rate.

Critics to privatization in the United States say that it will create trillions of dollars in transition costs. These costs are derived by retirees currently supported by the public system. It is estimated that the transition would cost around $3.7 trillion.

However, there is a way to pay for it. Chile paid for transitions costs with unused government assets.

“Suffice it to say that even though governments have enormous pension liabilities, they also have enormous assets. In Chile we had state-owned enterprises,” said Jose Pinera, Chile’s Minister of Labor.

America has assets too, and plenty of them:
  •   $193 billion in gold assets
  • $919 billion in land
  • $1.2 trillion in buildings and equipment
  • $392 billion in mineral rights
  • $600 billion in TARP assets and direct loan portfolio
  • Hundreds of billions of dollars in federally run utilities and other government-run operations
These assets provide flexibility in transitioning to a new social security system.

Unfunded liabilities of the current system are upwards of $11 trillion — almost 4 times as much as the cost of transition. Directly paying off the transition costs would save taxpayers trillions of dollars in future unfunded liabilities.

Young America faces a future of paying off massive debt that they have inherited from a compulsive spending government. Social Security must be reformed before the curtain closes on younger generations.





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