Commentary

Armey Warns of Social Security Crisis…

In dueling memos, House Majority Leader Dick Armey (R-TX) and Rep. Robert Matsui (D-CA) recently laid out what will likely be the two sides of the debate over Social Security privatization. In this first clash, at least, Armey appears to have the upper hand.

In a memo to House Republicans, Armey warns that Social Security faces an “unavoidable crisis” and makes several important points, among them:

  • Social Security currently faces an unfunded liability of nearly $22 trillion, an amount equal to:
    3 times the current GDP
    7 times the current national debt
    11 times this year’s federal budget
    75 times the size of this year’s defense budget
    750 times the size of this year’s education budget
  • The Social Security Trust Fund “is merely an accounting device” that contains no real assets.
  • Without individual accounts, the only way to fix Social Security is to raise taxes by 50 percent, drastically cut benefits, or deficit-spend on a massive scale.
  • Social Security is becoming an increasingly bad deal for young workers. Armey notes that a worker born in 1960 will receive a rate-of-return on his taxes of less than two percent. Workers born this year can actually expect a negative rate-of- return.
  • Social Security is especially unfair to women, African-Americans and the poor.

Armey concludes that only personal accounts create sustainable solvency, increase real rates-of-return, create assets than can be passed on to one’s heirs, and make it possible to reduce payroll taxes over time.

Michael Tanner is director of the Project on Social Security Privatization at the Cato Institute.