Why does America need to strengthen Social Security? The answer is simple: For nearly half of Americans, Social Security is the only pension they have. The program has worked to relieve poverty among the old, disabled workers, women and minorities. It prevents social inequality among the rich and poor. For young families, it prevents their in-laws from moving in for support.
Social Security has worked so well because all working Americans contribute to the program and all Americans receive a guaranteed benefit. Ryan Sager, president of GW Libertarians, proposed investing two percent of the current Social Security tax in private accounts (“Privatization is the only way to save Social Security,” Feb. 11, p. 5.)
What that means is the guaranteed benefits so many Americans rely on will be cut dramatically. The idea behind this scheme is that the investments will cover the difference.
This two-percent contribution from the average wage earner will only be $540 per year, which equals $21 every two weeks that a worker will contribute. For one-third of all workers, the contribution every two weeks would be $6.50. These deposits are not significant for any broker or even a mutual fund to accept. Individual accounts are too great of a risk to sacrifice over Social Security’s guaranteed benefits.
The amount of risk in the stock market for an individual is so large that poor investments will leave many Americans worse off. The cost of supplying information to workers to inform them of good stocks and mutual funds will be enormous not to mention potentially misleading.
Finally, the cost of having brokers or mutual funds conduct trades will be equal to 20 percent of the paid benefits from individual accounts, according to Professor Peter Diamond of the Massachusetts Institute of Technology. These costs are Wall Street’s gain.
President Clinton’s plan on the other hand, is designed to maintain and continue the guaranteed benefits of the Social Security system. Reserving the surplus for Social Security preserves the system so that when Americans who are in their 20s retire, they not only are entitled to, but they will receive the same benefits as their parents and grandparents did.
The president’s plan maintains the fairness and stability Social Security was designed to have. Many may argue that because the president has proposed investing part of the surplus in investments other than U.S. Treasury bills, politicians such as senators Lott and Daschle and representatives Gephardt and Hastert will make the Social Security investment decisions.
They are wrong.
A board of governors similar to the Federal Reserve Board will be established to pick investors. These expert investors will decide how to diversify and invest about 15 percent of the Social Security trust fund, which is equal to the assets of Fidelity or Merrill Lynch.
The final issue is how to increase the wealth and savings of all Americans. The president has proposed USA accounts to do this. Unlike individual retirement accounts, these accounts promote savings and do not replace the guaranteed benefits of Social Security. Social Security is not a retirement issue, but rather it is an issue that will affect the lives of every student at GW.
-The writer is a sophomore majoring in international economics.