Sorting Out Social Security
Your excellent article "Social Security: Let it be" (News: Analysis & Commentary, Nov. 30) and your editorial "What Social Security crisis?" neglected to mention the Social Security actuaries' assumption of a 6% average unemployment rate. This is far more crucial to their pessimistic main projection than the 1.7% growth rate. Their alternative 5% unemployment projection--generally ignored--had no problems for the future.
The potential (full-employment) growth rate is determined by the long-term labor force trend (highly predictable) and the productivity trend (not so predictable). But the average unemployment rate is determined by economic policy--which should be managed, not predicted. Unemployment has been well below 6% for several years, without inflation. So let's refocus the Social Security debate on the economic policies that so largely determine its financial health, not on speculative projections.
John S. Atlee, President
Institute For Economic Analysis
Peter Coy states that a privatized Social Security system would cause today's workers to pay twice (necessitating tax increases) and that the public should not be submitted to "financial market whims." He ends by claiming that income security can be created only by collectivist solutions: "If it's not social, it's not security."
But Social Security has worked well because pyramid schemes always work for the few who get in early. It is later, when liabilities mount, that the problems begin. Second, the Social Security "trust fund" does not exist. Third, today's workers already pay for current retirees while saving for their own retirement. Privatizing Social Security would mean my contributions as a young worker would belong to me, perhaps offsetting my current retirement contributions and effectively cutting my taxes. Needless to say, this is preferable to seeing my contributions be poured down a sinkhole in exchange for nothing, as is currently the case.
As for "financial market whims," money moves around in a financial market to attain higher returns, which makes growth possible. The private financial market is a perfect place for retirement savings--investments that are intended to pay off decades down the road.
Since I am not an actuary, but a fiscal conservative, let me make a recommendation (one so simplistic it scares me): Since there is a so-called surplus in federal income, there should be no need to use the Social Security surplus. Just invest it--but not in industries through the stock market. Why not lend the current excess funds to the general public for housing or to municipalities for infrastructure at 5% interest? This is a good rate for either and would not increase the federal government debt. Provide for the normal amortization for these loans. This would increase Social Security income, thus possibly decreasing the amount of payroll tax.
Whatever debt the federal government now has to the Social Security Trust Fund at 5% should be repaid at 1% of the outstanding balance per year. Admittedly, this would take 100 years to pay off but should not be a significant burden on the taxpayer. At least a target would be established to amortize the debt. This repayment schedule should also reduce the amount necessary to be paid through payroll taxes.
Frank C. Haugh
Fairview Park, Ohio
The payroll tax should be extended at least to all wage income. While eliminating the regressiveness of the current tax, this would allow a cut in the tax rate yet maintain the same amount of revenue. If the tax were applied to all income instead of just payrolls, the rate could be cut still further. It could also be fine-tuned to lie somewhere in the middle; say, applied to all income with an exemption for the first $100,000 per year in interest, dividends, and capital gains. This would be one tax cut that would benefit the poor and the middle class rather than the wealthy.
Why not radical surgery? The only way to address this debate is to give self-determination back to the individual and allow people to make decisions about their lives. A good example of a private retirement plan that works is the municipal employees of Galveston County, Tex., who in the early 1980s were given a choice to leave Social Security for a private plan. The alternate plan works like the Social Security system but invests money in annuities of insurance companies. This provides a better growth rate and a higher standard of living for the retired employees.
Graff L. Kennelly
Royal Oak, Mich.