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Americans Ready to Take a Walk on Social Security

by Andrew Biggs

This article appeared on cato.org on July 29, 1999.

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A recent opinion poll on Americans' attitudes toward Social Security confirmed some old statistics and revealed some interesting new ones. In particular, almost one-third of Americans would walk away from Social Security and all the taxes they've paid simply to be free to manage their own retirement savings.

The new poll, taken by Rasmussen Research in late May 1999, shows a majority of Americans favoring the option of investing part of their payroll taxes in the market. That's nothing new: a July 1998 Gallup poll showed 66 percent in favor of personal accounts; a December 1998 International Communications Research poll showed 74 percent in favor, and an August 1998 survey conducted for the Democratic Leadership Council found 72 percent of Democrats favoring personal investing.

But the latest poll presents exciting new evidence of public frustration with Social Security and the desire of many Americans to get out, whatever the cost.

Only 28 percent of respondents in the Rasmussen survey call Social Security a good deal for today's workers, and by a three-to-one margin Americans think that politicians will spend projected budget surpluses rather than save them for Social Security.

A strong majority of Americans look at Social Security as a faulty product - they simply want to return it and get their money back. Given the chance to do just that - to get back all the taxes they've paid in exchange for forgoing future benefits - two of three would give up Social Security and provide for their own retirement. Only one in five, most likely older individuals nearing retirement, would stay.

Even more startling is that one of three would opt out of Social Security and go it alone, even if they didn't get back a cent of the payroll taxes they've put it. Like defectors from Eastern Bloc countries, millions of Americans are willing to leave everything behind and jump the wall to retirement freedom.

Opponents of Social Security privatization call those would-be defectors irrational Chicken Littles, insisting there's nothing wrong with Social Security that a tax-hike nip here and a benefit-cut tuck there can't fix. Like the band on the Titanic, which continued playing "Nearer My God to Thee" while the ship was sinking, these crisis deniers play the same old big-government tunes as the waves of insolvency begin lapping at Social Security's decks.

But for most Americans under age 40, walking away from Social Security wouldn't be an act of panic. Going it alone could be the smartest thing to do, even if they had to sacrifice all prior taxes as part of the bargain. For one thing, beginning in 2014 taxes will have to be raised to repay the bonds in the Social Security Trust Fund, making Social Security an even worse deal than it is now. By 2030 a couple earning average wages would have to pay more than $2,500 in extra payroll taxes each year simply to qualify for the same paltry benefits Social Security pays now.

And if individuals could invest their payroll taxes in the market, it would take only about 20 years to build up savings sufficient to match Social Security's monthly retirement benefits.

It isn't just the super-rich we're talking about. The average person paying into Social Security, who makes less than $29,000 per year, could pay taxes for two decades and still be better off on his own. If he invested his payroll taxes in a long-term stock fund making average returns, after only 25 years he would have $235,000, enough to purchase an annuity matching Social Security's retirement payments and disability insurance as well.

After 45 years of investing, the average worker would have $1.1 million. With the extra money saved over an entire working lifetime, individuals could afford a better standard of living in retirement or leave a substantial inheritance for their children in the event of their early death. Plus, they would have the peace of mind of not having to rely on politicians to keep their promises decades into the future.

Why is it that no worker would walk away from his 401k plan after years of investing? Because he has real savings, earning a real rate of return, in an account that belongs only to him. All the present system offers is even higher taxes, even lower benefits and even less security.

What does it say about the public's confidence in Social Security that almost a third of Americans would simply walk away, no questions asked? And more important, what does it say about the future of Social Security that they would be smart to do so?