Your article on Social Security shows a heartening concern that this important issue remains on the agenda. However, it merits certain corrections. Kenneth L. Perry of Newport Beach writes that Social Security should be a collective fund into which all pay and that all would suffer benefit cuts when the fund runs out. That is the case today: Practically all Americans, including elected officials, pay into Social Security, and under law when the trust fund runs out in 2038 all retirees will suffer a 28% reduction in benefits.
Connie Haddad’s article exhibits more difficulties. Haddad argues that Social Security’s trust fund is real because it contains real government debt; but no one argued otherwise. However, unlike a private sector fund, the trust fund cannot put off tax increases by a day or a dollar because taxes must be increased to repay the Treasury bonds in the fund. Moreover, while the fund’s debt is legal, nothing prevents Congress from reducing benefits if the burden of repaying that debt is too great. Given the massive size of debt service payments, it is a surety that benefits would be trimmed before 2038, fund or no fund. Haddad also mischaracterizes reforms based on personal accounts.
Under proposals from the president’s commission, Americans over age 55 would see absolutely no changes to their benefits or cost-of-living adjustments. Younger workers could choose to invest part of their payroll taxes in personal accounts, part of which might be invested in broadly diversified stock index funds.
An Enron-type debacle would be impossible, as workers could not invest in individual stocks as Enron employees did. Finally, Haddad claims the president’s commission failed to come up with a viable plan to cover the cost of transitioning to personal accounts. That is incorrect; all of the commission’s plans would cost less than maintaining the current system, in one case fully 68% less, while paying higher benefits to the low-wage retirees who need them most. Whatever the costs of personal accounts, they are far smaller over the long run than the insolvent status quo.