Social Security has long been a topic of heated debate
for the people of the United States-from small, low income
families even to the most educated Harvard graduates. The
reason that Social Security is such a popular argument is
because it affects everyone. This is an extremely situation
because it has a lot of problems that need to be worked out
before itís too late. For example, the way it is financed,
the burden of its taxes and the damage it does to the
national savings and investment.
The problem with the way itís financed is the fact that
the taxpayer isnít getting returned as much as he should,
and the fact that the money isnít being invested as it has
the ability to be. Because of this simple fact, Social
Security becomes a noose on the American economy, choking
financial assets from being invested in a useful manner. If
we could just find a way to change Social Security so that
the money was used wisely, our economy could be helped out
immensely.
According to Harvard economist Martin Feldstein, the
revenue collected from Social Security would add 3% to the
nationís total output of goods and services per year, and it
would just be from collecting the peopleís money and
investing it in a manner that will not only serve itís
original purpose, but also be beneficial to the taxpayers
themselves. If 3% doesnít look like a lot, consider the fact
that itís about a third more than the total budget deficit,
and that most of it is in governmental IOUs and not
investments like stocks and bonds. In 1995, this percent
would have produced approximately $220 billion dollars.
Another problem is the burden of the taxes. According
to Fortune magazine reporter Rob Norton, almost all taxes
distort the economy, which are a burden to the taxpayers,
but donít even produce additional revenue for the
government. Also, the money that the taxpayers earn on
their mandatory Social Security contributions is a lot less
than they could earn in a private pension or in a funded
system.
Feldstein argues that ďSocial Security contributions
can be expected to grow at the same low rate at which the
payroll-tax base has been growing: 2.6%, on average since
1960. The real pretax return on non-financial corporate
capital was 9.3% over the same period.Ē This information,
granted the 6.7 percentage point difference, shows that the
loss is quite significant.
Because of this result, distortions in labor supply
will occur. People will need to work longer hours than if a
funded system were used to be able to afford the same amount
of retirement income. Feldstein estimates that this loss
from Social Security taxes in 1995 was about $68 billion.
Thatís nearly 1% of the GDP.
The damage it does to national saving and investment is
severe. If we would switch to a funded or privatized system,
it would expand the nationís capital stock so significantly
that the value of future economic gains would easily slide
past $10 trillion, which is, according to Feldstein, equal
to 2% of GDP per year.
I think the best solution to these problems is to make
Social Security focus more on a funding-type or privatized
system. For the first problem of weak Social Security
returns and the lack of sufficient use of the money, a
privatized system would allow the taxpayer to gain from his
giving. He will be able to obtain the interest gained from
investing his money and he will not feel as though he in
fact had a loss. This will also minimize harsh feelings
towards the social security system and will give people more
incentive to cooperate and see their own personal benefits,
as well as the benefits of the government and economy.
The output gain in the economy would be significant in
itself. Just imagine, 3% added to the nationís output of
goods and services. This would result in a higher standard
of living as well as bring in more revenue. Therefore people
would have more income and they would be more able to pay
higher taxes if needed in the future to upkeep Social
Security and keep it from going bankrupt.
Another possible solution would be to partially disband
Social Security. We could turn Social Security into a sort
of welfare program for the elderly. It could be used as a
fall back program for those who cannot maintain a living
after retirement on their own savings. This plan would
lower taxes, and give return the focus of our government to
the philosophy of assistance of the people, rather then
supporting them.
Social Security has had drastic effects on the U.S.
economy. We cannot afford to allow such assets to