Social Security Spooks

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Liberal Democrats in Congress and Bill Clinton love to attack Republican proposals for Social Security reform. In their quest for votes, they stoke the fears of older Americans by telling them that Republicans want to destroy Social Security by allowing Americans choices in providing for retirement. Most Democrats and some Republicans rank Social Security with God, motherhood and apple pie.

Few people know that about 5 million Americans employed by state andmunicipal governments do not pay into Social Security. Under theprovisions of the 1935 Social Security Act, state and municipalgovernmentscould opt out. This Social Security loophole was closed in 1983; however,Congress permitted those 5 million employees, as well as about 100,000clergy, to remain exempt from paying into Social Security.

Part of President Clinton's plan to "save" Social Security, andchampioned by Sen. John Breaux, Louisiana Democrat, is to forcepreviouslyexempted employees into Social Security. If 5 million more workers areforced into the system, it would bring in an estimated $11 billion overfive years. Instead of Social Security collapsing in 2030, it wouldcollapse in 2032 and there'd be 5 million more Social Securityobligations.Mr. Clinton and Mr. Breaux's proposal is standard for any Ponzi scheme -to keep the scheme going, you have to round up more participants.

Last April, 12 senators, including five Democrats - Dianne FeinsteinandBarbara Boxer, both of California; Christopher Dodd of Connecticut;RichardDurbin of Illinois; and Edward Kennedy of Massachusetts - descended on theWhite House to demand President Clinton not support forcing 5 million oftheir constituents into Social Security. They warned of the adverseimpacton employees in terms of lower rates of return and lost flexibility.

J.T. Young, chief economist for the U.S. Senate Republican PolicyCommittee, points out a real-life example of the inferiority of SocialSecurity compared to municipal pensions. San Diego city employees arerequired to put at least 3 percent of their salary into a pension plan(andmay contribute up to 7 percent). Say a worker with a constant salary of$32,000 puts a minimum of 3 percent of his salary into adefined-contribution plan that goes into a mutual fund paying an annualrate of 7 percent. Upon retirement, that worker will have $293,385 inconstant dollars. Such a return is far superior to Social Security's zeroto 2.5 percent rate of return.

If currently exempt workers are forced into Social Security, they'dalsolose the flexibility of their municipal pension plans. Municipal pensionplans typically award partial benefits for partial disability. SocialSecurity provides benefits only when the individual becomes totallyunemployable. People in high-pressure jobs like police and firefightingsometime require early retirement. Under Social Security, retirementbenefits are not available until age 62. It doesn't take a rocketscientistto figure out why municipal employees don't want to be in Social Security.

But what are we to make of Democrats who criticize Republicans forproposals that would begin the process of allowing American workers tofinda deal better than Social Security while at the same time fighting to keeptheir 5 million constituents from being dragged into the Social Securityrat hole? At best, they're a little more than forked-tongue scoundrels.

When politicians boast to you about the wonders of Social Security, youshould ask them: "If Social Security is so wonderful, how come people haveto be pulled kicking and screaming into it? If it's so wonderful how comeyou're petitioning Clinton to spare your municipal employee constituentsfrom being pulled into it?" I bet they will fork you gibberish foranswers.

Walter E. Williams

Walter E. Williams is chairman of the Economics Department at George Mason University and a Cato Institute adjunct scholar.