Although it doesn’t have the historical significance of the signing of the Declaration of Independence, D-Day or the Louisiana Purchase, nonetheless a milestone will take place Friday, August 14th. On this date in 1935 President Franklin Roosevelt signed the Old Age, Survivors, and Disability Insurance (OASDI) program into effect, which created Social Security.
Although created during the Great Depression to provide some semblance of a social safety net, it seems apparent that Roosevelt understood the limitations of Social Security and did not intend it as an individual’s sole source of retirement. Nor did he intend for the federal government to accumulate debt to fund obligations. His presidential statement on signing the act into law on August 14th, 1935 reiterated this:
“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.
This law, too, represents a cornerstone in a structure which is being built but is by no means complete. It is a structure intended to lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy.”
Needless to say, after 80 years opinions are wide and varied on the success or failure of the program. John Stossel has outright referred to Social Security as a “ponzi scheme,” while Carolyn Colvin, the acting commissioner of the Social Security Administration touts the program as a success and is confident and adamant the program will still be viable 80 years from now.
Regardless of varied opinions, two aspects of the program need to be made abundantly clear:
There is no trust fund. None of the money is stored. As Michael Tanner of the Cato institute has pointed out “participants receive payments, not from returns on their own investments, but directly from inflows from subsequent participants,” similar to a Ponzi scheme.
Social Security is a terrible vehicle for retirement and return on investment. Social Security nets a theoretical 1 to 2 percent return for workers paying into the system. Tanner has proposed allowing younger workers to invest a portion of their social security taxes into privately invested personal accounts. The country of Chile has for 33 years allowed workers the option of investing into private savings accounts. Similar options are available in Australia and the United Kingdom. Workers in Chile realized nearly a 9.23 return over inflation on their money over 30 years.
Columnist John Tierney, writing in The New York Times in 2005, calculated what his retirement benefits would be if he’d had access to the Chilean system instead of Social Security. He discovered three options: “(1) Retire in 10 years, at age 62, with an annual pension of $55,000. That would be more than triple the $18,000 I can expect from Social Security at that age. (2) Retire at age 65 with an annual pension of $70,000. That would be almost triple the $25,000 pension promised by Social Security starting a year later, at age 66. (3) Retire at age 65 with an annual pension of $53,000 and a one-time cash payment of $223,000.
Proposals such as private accounts are never under consideration by the left. The late Geraldine Ferraro, D-N.Y., was adamantly against any such idea. She stated if one lacked the “knowledge and the wherewithal to manage your own private funds … you’re gonna be out of luck.” The left’s solution is always a tax increase or gimmicks such as reallocating revenue in one form or another.
Fox Business columnist Gail Buckner stated ‘If employers and employees all kicked in 1.34% more, we would solve the funding problem for Social Security for the next 75 Years!” Carolyn Colvin stated “If we temporarily reallocate 0.9% from the retirement fund to the disability fund for 5 years, this will ensure the solvency of both programs through 2034…I am very optimistic this will happen.”
The solutions are obvious: allowing U.S. workers the option of private accounts, and finding a political leader with the will to promote them. The Chilean secretary of labor , José Pinera, went on television day after day to explain to workers the benefits of allowing private savings accounts. He persuaded 93 percent of them to invest in retirement portfolios, with the option to continue as before.
President Bush wasted a similar opportunity in 2005. With control of both houses of Congress, and the Chief Actuary of Social Security scoring the proposed legislation as achieving full solvency for Social Security, the opportunity never looked better. However, a poor public relations campaign doomed the proposal from the start.
Where is the leader the country so desperately needs for Social Security and entitlement reform? One can only one of the proposed Presidential candidates will emerge and take the lead on this never-ending issue.