Another online debate about Social Security
In response to a piece on Larry Kudlow's site about unions and social security reform, I wrote a comment in response to another reader's comment. Again I think it's an instructive demonstration of the views of opponents of reform and hopefully a good example of some arguments to counter them. Note that this commenter ("Nahuel") obviously doesn't know anything about business or economics, but remember that most voters don't either.
Here are my comments which I posted on Larry's site:
Now, to commenter Nahuel: You are wrong about every point you try to make.
First, who says that a worker must be given a say in how a business is run. He doesn't own the business nor take any of the financial risk, so why should he get any say beyond what the owner(s) ask for?
Second, and you got lots of things wrong here: A) transition costs to personal accounts now are simply paying costs we will have anyway, but paying them earlier and cheaper, especially while government borrowing rates are this low.
B) Since the plan would involve a worker using money that is ALREADY coming out of his paycheck and putting it into an account that he owns rather than into the ponzi scheme of Social Security, there is no additional cost to any worker and it is NOT only people with additional disposable income who benefit.
C) You want to talk about something "being passed on to our kids"? Then let's talk about how when a Social Security recipient dies, the government typically just keeps the money. If someone had a personal account, when he/she died the money could be bequeathed to their kids. Social Security is a major factor preventing low-income people from increasing the standard of living for their children.
3) Raising the cap on which Social Security taxes are paid would increase the marginal rate for people making over $90,000 to about 50% for residents of most states. These are about the top 10% of taxpayers and they already pay 2/3 of the total federal income tax. The bottom 50% pay about 3% of total federal income tax. "Soaking the rich" has significant consequences for the non-rich as it dramatically decreases incentive to create new jobs. There's a reason that revenue to the government goes up when tax rates are cut.
The engine of our economy is people who are willing to expend capital and take risk to try to earn profits. Everything you describe is a way to discourage such risk-taking and all it means is that rich people will just quit working and enjoy life on their savings while low-income people suffer greater unemployment because of destructive policies such as those you suggest.
Here are Nahuel's comments to which I was responding:
First: Without some form of collectivism, the worker is pretty much powerless. It isn't perfect, but it is necessary when a regular worker doesn't have a voice in how a business is run.
Second: Social Security is a necessary component and should not be privatized. It will reduce benefits even with an optimistic view of the market, and will weaken the system as a whole. Transition costs will be enormous and will be passed on to our kids. The increase in government spending will more than likely affect the markets that the new system will depend on. The only one's that will benefit are those that already have enough money to invest in a retirement plan. Those that don't will not have enough money left even with the private accounts.
Third: A better solution would be to increase the cap of salary reduction for those earning above $90K. This will generate enough money to keep social security alive without cutting any benefits.
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