EDITORIAL: IT’S TIME TO END SOCIAL SECURITY LIES

Congress will not address the Social Security mess until voters accept some hard truths.

There is no money waiting in little piles in a vault with a taxpayer’s name and number attached to a particular pile, as the Social Security Administration’s propaganda has implied for years. No taxpayer has any legal claim to any amount, despite having made “contributions” his or her entire working life.

And there is no “Social Security Trust Fund.” The money taken in today from workers is spent immediately by the U.S. government on other things, from aircraft carriers to roads and bridges. While the Social Security system hauls in more today than it must pay out, the difference flows into the Treasury Department and helps cover deficits in the rest of the government. In return, the Treasury gives Social Security IOUs in the form of non-marketable bonds.

A former chief actuary of the system described it this way: It’s like deciding to save for retirement, then immediately spending the money and putting into a safe deposit box an IOU promising those “savings” plus interest will be made up by your children.

By the Social Security Administration’s own calculations, it owes $7.5 trillion more to workers currently enrolled in the system than it will collect in taxes during their careers. Some proponents of the status quo say the problem can be solved with “minor” changes, such as increasing the retirement age to 70, and “slightly” increasing Social Security taxes. But the Social Security system’s own intermediate — i.e., most likely — projections show Social Security taxes will fall 20% short of payments between 2010 and 2065 (this does not include Medicare costs, which would increase the shortfall to 36%). It will take more than a “slight” tax increase to cover those gaping holes.

Many experts from across the political spectrum have proposed variations on a simple but powerful solution: Allow participants to invest part of their Social Security taxes in the capital markets, where, over a working career, they can accumulate real wealth.

No one has proposed allowing individuals to invest all of their taxes in the market, though that might be an ultimate goal after a long transition period. There would still be tax revenues flowing in to the system to pay the benefits of older current workers.

But younger workers would have the opportunity to build real trust funds for themselves, not mythical ones. Even low-income people would be able to create sizeable nest eggs that put to shame what the current system promises: Assuming a moderate rate of return of about 8% a year compounded annually, their retirement savings would double every nine years.

Twenty years ago, such a change in Social Security would have been impossible because most workers knew almost nothing about investing. Today, more and more people participate in the stock and bond markets through 401(k) plans. They understand more about investments. And they learn more each day. Show them how Social Security has become a giant intergenerational chain letter that is in danger of breaking down, and they’ll support reforms that give all Americans a properly funded, partly individually directed, retirement program.