Kessel: Let’s touch the third rail

Zach Kessel, Op-Ed Contributor

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The Old-Age, Survivors, and Disability Insurance program, more commonly known as Social Security, has long been said to be American politics’ proverbial third rail. The only real way to avert impending economic doom while avoiding deep benefit cuts, massive borrowing or economy-gutting tax hikes is to privatize Social Security.

Every single attempt at reform has failed, from former president Bill Clinton and House Speaker Newt Gingrich’s 1997 secret agreement to former president George W. Bush’s 2005 plan for partial privatization. Social Security reform is the furthest thing from political expediency but is absolutely necessary for America’s future. Without serious reform, Social Security will be the meteor that wipes out the dinosaur of the American economy.

The baby-boom generation is retiring, and the ratio of workers paying into Social Security to retirees benefitting from the program is rapidly shrinking. For comparison, in 1940, 159 workers’ payroll taxes funded one Social Security recipient’s benefits. In 2013, the estimated ratio was 2.8 workers to each recipient. In fact, because of the shrinking ratio, the Social Security trust fund itself is slated to become insolvent by the year 2034. When the fund empties, the only source of funding for Social Security will be the payroll tax, and payouts will become astronomically smaller.

The problem does not end there.

When Social Security beneficiaries receive smaller payments, they will, in turn, purchase fewer goods and services. It isn’t just those receiving benefits who rely on that money. Less money in the hands of consumers means less money in the hands of producers and lower tax revenue for the government. When the well runs dry, the whole village goes thirsty.

Earlier in the column, I wrote that the only ways to keep the current system and stave off Social Security’s insolvency are to cut spending in other areas, to raise taxes, to borrow more money or some combination thereof.

All three would have disastrous consequences.

No reasonable tax increase or budget cut could comprise the $945 billion Social Security costs yearly. Borrowing presents a more concerning problem. The U.S. has an immense amount of debt, for which we have not yet seen the consequences. While investing in the U.S. economy is and always has been the safest bet in the world, it should not be treated as a certainty. In fact, the most likely outcome in the event that the U.S. goes the borrowing route is that the U.S. would default on its loans, crashing the world economy. It is not outlandish to suggest that, if unreformed, Social Security could cause global societal collapse.

Critics of privatization say that it would hurt the poor. That is not the case.

In his 2011 Wall Street Journal editorial “Private Accounts Can Save Social Security,” former Chairman of the Council of Economic Advisers Martin Feldstein wrote that, with a private account amassing a comparatively modest 5.5 percent rate of return, “someone with $50,000 worth of real annual earnings during his working years could accumulate enough to fund an annual payout of about $22,000 after age 67, essentially doubling the current Social Security benefit.”

Regardless of income, private accounts would do a much better job than bureaucratic management. Rather than hurting the poor, privatization would work to their advantage. Under the current system, those who live shorter lives — most notably the poor — effectively see their benefits transferred to those who live longer and are thus able to collect more money.

Privatization would — through increased rates of return and the ability to pass down unused funds in the account — allow all Americans to live comfortably and guarantee that their progeny have money as well.

Those who read my last article know that no column of mine is complete without my groaning about government mismanagement. This shall be no different.

Americans put money into the fund with no guarantee they will ever see it again, and the government uses their money to pay earlier investors. Now, the system could have worked in perpetuity, were population not to change, but that is not the case. In the past, the federal government has used Social Security surpluses to fund other spending, including the purchase of Treasury bonds. Private accounts cut out all of this chicanery. They simply allow your money to grow, and ensure that you see it when you retire.

Social Security’s impending insolvency is arguably the most pressing issue the U.S. faces, and one that will likely never see a solution until far too late. All attempts to touch that third rail have failed thus far, and with President Donald Trump’s Republican Party abandoning fiscal conservatism, it seems that any hope for change has been lost.

Zach Kessel is a Communication freshman. He can be contacted at zachkessel2023@u.northwestern.edu. If you would like to respond publicly to this op-ed, send a Letter to the Editor to opinion@dailynorthwestern.com. The views expressed in this piece do not necessarily reflect the views of all staff members of The Daily Northwestern.

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