Monday, October 24, 2016

Politicians’ Bipartisan Sneak Attack on Social Security Highlights Need for Personal Accounts

Recently, word got out about changes Congress and President Obama made to Social Security Benefits. It’s not good for beneficiaries. In  Social Security: 5 Things to Know About New Claiming Rules, Money reported, among other things:

Why did the Social Security changes happen so suddenly?

Good question. Instead of holding a public debate, Congress tacked these changes onto an emergency bill to avoid a U.S. debt default, bail out Medicare from enormous premium increases next year, and extend the life of Social Security’s disability insurance program, which had been scheduled to run out of money in less than a year. There was no public evaluation or discussion of these changes, and there are still no publicly identified authors of these reforms.

A PBS article stated that. . .

Congress is pulling the rug out from people's retirement decisions... No retiree will ever again be able to feel [they are] safe from some backroom, midnight, rushed change in rules.
But the idea that retirees could “feel safe” about the promised benefits their lifetime of paying FICA taxes supposedly guaranteed them has always been a myth. The politicians always had the power to make arbitrary changes to Social Security.  As CATO reports:

Many people believe that Social Security is an earned right-that is, they believe they are entitled to receive Social Security benefits because they have paid Social Security taxes. However, in Flemming v. Nestor (1960), the Supreme Court ruled that workers have no legal right to Social Security: Congress can cut or eliminate Social Security benefits at any time regardless of a worker's contributions.

What does anyone expect when we gave Congress control of our retirement planning? That’s why we should, at the least, demand a transition to personal accounts to wall off our funds from political manipulation. In the 2000 election, the idea of a “lockbox” for Social Security intended to prevent Congress from raiding surplus SS tax funds was a big campaign issue. Of course, it was all rhetoric. Nothing happened.

But personal accounts along the lines of Individual Retirement Accounts (IRAs) could be different. As long as Social Security exists, personal accounts would be as close to a real “lockbox” as we can get. Imagine getting periodic statements showing not promised benefits but actual dollars you “contributed,” plus investment returns. Then imagine any politician submitting legislation to mess with your account.

True, you wouldn’t have guaranteed benefits. You’d have a defined contribution plan. But then, as we can see, the current system doesn’t guarantee benefits, either. What you could be sure of is that the balance that shows up on your statement would be yours.

Longer term? ABOLISH GOVERNMENT-RUN SOCIAL SECURITY, and leave people free to use their money as they see fit. Being politically impossible for the foreseeable future, the next best thing could be The “Personal Account” Path to Ending Social Security. True, it would still be a forced savings under terms set by government, a violation of your rights. But it would give you a property right to your earnings and investment returns. And it would end the kind of backroom deals cited above. In my view, that’s a step toward more liberty.

Related Reading:

Caroline Poplin's Swiss Cheese Defense of Social Security

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