Whether Social Security remains the deadly third rail of politics is among those things likely to be revealed in next month’s congressional special election. Ads paid for by the Democratic Congressional Campaign Committee pound GOP nominee David Jolly, claiming he favors “privatizing Social Security and forcing seniors to gamble with their retirement in the stock market.”
The DCCC’s description of Jolly’s position is, at best, a gross distortion, and at worst an out-and-out scare-mongering falsehood. Sensible Republicans — we count Jolly in that mix, along with Florida U.S. Sen. Marco Rubio — advocate private accounts for younger workers, not current seniors, as part of the solution for what ails Social Security’s groaning trust fund.
Every published account of the GOP’s reformist principles notes in painstaking detail that current Social Security recipients, along with anyone at least 55 years old, would be unaffected by changes to the program. Younger workers would have the option of steering a portion (usually one-third; it should be twice that) of their payroll taxes into a managed investment account, much like an IRA or a 401(k), bearing their name.
Also like current private investment programs, the amount of risk would be up to the individual. Workers just starting out might prefer assorted of growth-stock funds; middle-aged workers might move into a mix that included more blue chips and bonds; and workers approaching retirement might shift toward an even less-volatile basket to preserve their gains … and there almost certainly would be gains.
Historically since 1929, the year the Great Depression began, the “risky” stock market has returned (through appreciation of share prices and reinvested dividends) close to 10 percent annually. That’s right. Including the two worst economic downturns in the past 100 years and all the mini-recessions in between, “gambling” investors have seen prodigious long-term improvements in their financial health.
Social Security, meanwhile, crossed a devastating threshold in 2012. What had been a fairly reasonable rate of return for early enrollees (up to about 6.9 percent, risk-free) has been turned upside down. According to an Urban Institute study, a married couple of average means retiring in 2011 will receive less in benefits than they paid in over their working lifetime. Assuming the man lives to be 82 and the woman makes it to 85, they’ll reap just $556,000 after having paid in $598,000.
That arrangement is bound to worsen as Social Security’s so-called “trust fund” is exhausted in 2033. About that: The “trust fund” is actually a thinly disguised revolving door at the Treasury Department where payroll taxes are immediately dumped into Washington’s general revenue stream to mask deficit spending.
This is the program Alex Sink, the Democratic nominee, says in commercials she wants to go to Washington to “strengthen,” meanwhile keeping the details of what that means a carefully guarded secret. Want to bet it means raising the caps on wages subject to the payroll tax? High earners are going to love that, considering their Social Security ROI went under water in the 1990s and hiking the caps would serve only to further aggravate the tension between the government’s wealth-redistribution impulse and resourceful individuals’ urge to shelter income.
DCCC ads bashing Jolly lament his characterization that Social Security “is a Ponzi scheme,” but the shoe fits. New receipts are required to fund current beneficiaries. They also swoon over Jolly having the courage to express a rarely acknowledged but hard-edged truth: Social Security payments are not guaranteed. Not only did the Supreme Court rule that way in 1960 (Flemming v Nestor), but the current Democratic president doesn’t even have the DCCC’s back. Facing a debt-ceiling deadline in 2011, Barack Obama lamented he’d have to suspend Social Security checks if Republicans didn’t relent.
That wasn’t true, of course; even at the depths of the Great Recession, there was plenty of money coming in through payroll taxes to meet Social Security’s obligations. But President Obama could rattle retirees’ cages because, (a) the program is a Ponzi scheme (it holds nothing but federal IOUs) and (b) individuals have no legal claim on their deposits.
Under reform that would include the sort of private accounts Jolly advocates, each of those conditions would change for the better. Moreover, not only would future retirees’ budgets no longer serve as handy political footballs, America would create a new class of independently wealthy old folks with a high six-figure nest eggs to live on, with whatever’s left available to pass onto the kids.
Pump the numbers into an online investment calculator: A household with a $50,000 income has about $3,100 deducted from its paychecks annually, or $258 a month. If only two-thirds of that ($172) was available for steadily feeding an individual account (the rest, and the employer’s portion, would still feed traditional Social Security), a private account returning 9 percent — slightly less than the historical stock market average — would be worth more than $760,000 at the end of 40 years.
That’s what former Washington lobbyist David Jolly wants for future retirees, without ever touching that first dime of what current retirees have been guaranteed. No wonder the DCCC thinks he’s some kind of demon.