Think about the Children: Privatize Social Security

Wednesday, February 3

By Carrie Lips

In politics these days, just about every issue is talked about in terms of "the children." But "the children" were conspicuously absent from the President's recent discussions about the future of Social Security. Perhaps that's because his reform proposal does nothing to avert the financial disaster that awaits today's children.

When today's first graders enter the workforce in 2015, Social Security revenue will not be enough to pay all legislated benefits. At that time, the Social Security Administration will have to redeem bonds by pulling $42 billion from general revenue. By 2035 Social Security will require $786 billion from general revenue -- almost twice what the government spends on Social Security today.

From whom will the government get that additional revenue? From the taxpayer, of course. In order to get that money, the government will have to either raise taxes, issue new debt or cut other spending to free taxpayer dollars. This means that in addition to paying 1/8 of their incomes in payroll taxes, today's children can look forward to hundreds of billions of additional income tax dollars going to Social Security.

Under the president's proposal, in 2045 expenditures from general revenues for Social Security would be more than one trillion dollars! But according to the president, Social Security will still be "solvent" at that time. It is only when politicians actually face the prospect of officially raising payroll taxes or slashing benefits that there is a problem for "the children," who by that time will be approaching retirement and will have children of their own who will face an even greater financial burden.

The real tragedy of the current debate about Social Security is that there is a reform that could do all of the things that politicians claim they want to do for children. By giving young workers the option of redirecting their payroll taxes to privately owned, individually invested accounts, politicians would truly offer them the chance to improve their financial future by taking advantage of the power of compound interest.

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