Bray: A No-Account System

July 31, 2002

Tom Bray of the Wall Street Journal points out the similarities between the accounting practices of the collapsed WorldCom and the current Social Security program. Excerpts from the column follow:

"When you think about it, though, what is there to count on with Social Security? If you thought WorldCom accounting was outrageous, you have to be panic-stricken by the way the federal government accounts for your "guaranteed" benefits under Social Security."

"By 2017, the Social Security system is scheduled to begin running a deficit. By 2041, the deficit could accumulate to 25% reduction in benefits or an increase in Social Security taxes to 17% from 12.4%, experts tell us. Moreover, many Americans still think the money they have paid in Social Security taxes is sitting in a trust fund on their behalf. Wrong. The money for decades was used for general fund purposes, leaving the trust fund with a mountain of nonnegotiable IOUs from the U.S. Treasury—to be repaid from higher taxes down the road. Talk about phony accounting."

"Yes, markets can be risky—something may have been in danger of forgetting during the go-go '90s. But that argues for prudence on the part of the investor, not greater reliance on a politically driven retirement system. Virtually nobody would have lost 75% of his nest egg in the past few years if he had followed a few basic rules of intelligent investing."

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