The Wall Street Journal recently published a discussion on the pros and cons of privatizing Social Security (“Should Social Security Be Privatized?”, March 27). Gus Sauter did a decent job outlining the positive aspects of this pathway showing that privatization is better for both retirees and taxpayers. On the other hand, Nancy Altman claimed that privatization would weaken people’s economic security, but filled her argument with erroneous information.
Nancy claims that Social Security is insurance and not a retirement savings plan — but that could not be farther from the truth. A retirement plan is exactly what it is, is how it was sold, and how it is even referred to on the government’s Social Security website. The problem is that a) it is a forced retirement system and b) the entity managing it (the federal government) does not include Social Security’s actuarially calculated expenses in the current year.
Therein lies the problem. By not doing that with their accounting, the federal government is able to simultaneously mischaracterize Social Security as a tax that is drafted from every wage earner’s paycheck. If wage-earners had been given the option to save and invest their own money instead, they could have easily earned a better return on it; if they wanted more fiscal security, they could buy an annuity. The amusing thing about Nancy’s flippancy is that she actually provides the better solution here for workers, but dismisses it as inferior to what the government can do, yet she fails to tell her readers how insolvent the system actually is.
Nancy goes on to describe Social Security more “universal, secure, fair and efficient — but at the same exact time, her article casually mentions “a projected shortfall.” Her solution therefore to make the higher earners pay more and uses a ridiculous, erroneous, exaggerated example to try to justify her point. Nancy claims that a minimum-wage worker pays 6.2% of his income in Social Security taxes, but a person earning $1 million contributes “only eight-tenths of 1% of all their wages.” Yet she conveniently doesn’t explain how the tax works. The Social Security tax is 12.4%, half of which a worker pays, and half of which an employer pays (unless you are self-employed, and then you pay the full amount.) That 6.2% she refers to is not just for “minimum wage workers”; it’s the amount every wage earner who makes up to $118,500 pays because that’s the federal wage cap on Social Security taxation. By randomly picking a $1 million wage year, she deliberately used a very large number to exaggerate a disparity that really doesn’t exist.
Nancy tries desperately to insist that the benefits that people receive are some incredible amount, but it’s entirely artificial. It’s a number that has nothing to do with what workers were forced to hand over through their social security tax. Because the government never actually invested Social Security funds like they promised so that it would be solvent — what what a worker gets back in benefits is a random, contrived number. Beneficiaries are not entitled to anything other that what Congress on a whim decides, because Social Security is paid by the General Revenue Fund via the tax receipts — and the numbers will continue to be tinkered with, changed, massaged, and ultimately reduced; we have seen that already with Social Security tax hikes and retirement age increases . Yet her entire rationale for trusting the government? “Government is permanent.” That’s laughable.