Last Friday, the school held its first debate tournament on the question of whether social security should be restructured into a private account scheme instead of the current social insurance scheme. I won the tournament, beating three opponents by arguing for privatization twice and against it in the final round. I think that some of what I argued might be instructive for framing the debate as well as being prepared for the other side.
Although there is some dispute over a few of the facts (such as what year the Social Security trust fund will run out), there is no question that it will run out by at least 2041. Which means that some kind of fix must be made, sooner rather than later.
Setting aside whether this is the right type of policy right now, this is a policy values debate - over what kind of values we want to espouse in our public policy. The privatization side argues that this is about empowering individuals, by allowing them to create real wealth for themselves and allowing them the opportunity to not be dependent on government handouts.
I think the flipside to that is to recall the initial justification for Social Security - to recognize that the American people are certainly about hard work, but also about helping our neighbors in their time of need. We recognized as a society that for some, it was difficult to set aside savings towards retirement. We established a system to guarantee that when they were no longer productive, that they wouldn't have to worry about their basic needs. This is part of our social compact as Americans - ties that bind us together as a people and speak to our values.
I think the values-based argument is weak for the privatization side, especially since its critique is that it separates us as Americans by breaking the social compact. It separates Americans from one another by forcing the separation of our monies.
Moreover, their strong suit is really on the policy side - the returns gained from the market versus what the government sees. Real returns for the stock market are over 7% over the past fifty years and even in the Depression, real returns were over 3% whereas Social Security returns are just 2%.
The difference is obviously in the risk involved. The stock market inherently has a lot of risk, even in the safest investments, whereas Social Security is invested in assets that produce a guaranteed, risk-free return. The argument I used was to say that the amount you get out of your retirement package is largely dependent on the performance of the market. If the market is in a boom, you luck out. If the market has crashed that year, your portfolio may be decimated. I also point out that people who were born during the Depression have now seen two stock market crashes in their lifetime so it's plausible that it could happen to current and future retirees as well. Social insurance, however, eliminates risk and insures that everyone will make out the same and equally, regardless of what the market is like.
I've been told the most influential argument I made in favor of the present Social Security system was the one I borrowed from Marie Coco at Newsday:
The Social Security trustees say it would require an immediate tax increase amounting to 1.89 percent of payroll to bring the giant plan into long-term balance. The nonpartisan Congressional Budget Office says it's only about half that - roughly 1 percent of payroll, director Douglas Holtz-Eakin told the House Budget Committee recently.
It would be a tax increase of less than 1 percent, split between workers and employers. The hike could be little as one-half of 1 percent each.
You haven't heard much about this piddling number. Talking about it suits no one's political purpose. For the president, admitting that fixing Social Security is, in fact, pretty straightforward - even simple - destroys his argument that the task requires the newfangled nonsolution of private accounts.
For congressional Republicans, talking about taxes means talking about cutting them, and never hiking them. Any talk about increasing them - even by raising the current $90,000 cap on wages upon which the Social Security payroll tax is levied - splits their party. And it robs them of a convenient, if overused, cudgel against the Democrats.
For Democrats, backing a tax hike of any kind automatically brings upon them that convenient Republican cudgel. And most Democrats would - correctly - point out that the Social Security payroll tax is regressive, falling hardest on those who earn the least.
A 2% increase provides 100% solvency for the future? Yep, that's a no-brainer. Too bad no one's got the political balls to stand up for it.
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