<<  <  >  >>

November 29, 1999

SSP No. 18

Social Security Is Still

a Hopelessly Bad Deal

for Today's Workers

by Peter J. Ferrara

Executive Summary

· He projects that the rate of economic growth

over the next 75 years will decline by over 50

percent compared with the past 75 years, and

he argument that Social Security is a bad deal

T

he fails to account anywhere for the increase

for today's workers and that they would get

in economic growth that would result from

higher returns and benefits by investing through

Social Security privatization.

personal accounts instead has gained broader and

· Mueller assumes administrative costs for per-

broader acceptance. This view has greatly fueled

sonal retirement accounts that are more than

reforms and proposals in the United States and

two times and probably over five times what the

abroad that are based on personal, private invest-

costs would likely be in the early start-up years,

ment and insurance accounts.

and 25 to 50 times what the costs would likely

However, the National Committee to Preserve

be in later years.

Social Security and Medicare recently released a

· Mueller assumes a transition financing plan

that imposes increased taxes on workers and

voluminous study by John Mueller arguing that

their retirement accounts, failing to recognize

Social Security would provide higher returns and

studies showing how the transition could be

benefits than a system of personal investment

financed without higher taxes or effective

accounts for all workers today, of all income levels

reductions in the projected benefits from the

and family combinations. That conclusion, directly

personal accounts.

contradicting a wide range of analysts, institutions,

· Mueller fails to take into account the before-tax,

leaders, and countries around the world, results

real rate of return to capital, which measures the

full, net benefit produced by the private capital

from extreme and untenable assumptions:

investments made through the personal retire-

· Mueller assumes that the returns to workers

ment accounts.

investing in the stock market will be 77 percent

Mueller's analysis only proves the opposite of his

less over the next 75 years than stock market

intended result. By showing what extreme and unre-

investors have earned over the past 75 years.

alistic assumptions are needed for Social Security to

· He assumes that over the next 75 years investors

pay better benefits, he effectively establishes once

will get a negative real return on corporate bonds,

again that personal accounts would pay far better

down dramatically from the 3 to 4 percent real

returns and benefits than Social Security.

return that has prevailed over the past 75 years.

Peter J. Ferrara is chief economist and general counsel with Americans for Tax Reform and a senior fellow

with the Cato Institute. He is the coauthor, with Michael Tanner, of A New Deal for Social Security.

1