February 24, 2004

Privatize program now

Michael Tanner on the need for Social Security reform:

Social Security reform cannot be put off. In less than 15 years, the national retirement program will begin to run a deficit, spending more on benefits than it takes in through taxes. The IOUs in the Social Security Trust Fund are merely a claim against future taxes, not real assets that can be used to pay benefits. Overall, the system is more than $26 trillion in debt.


Some people say that the current budget deficits make Social Security reform, and, particularly, individual accounts, impossible. They point to the ''transition costs'' of moving to individual accounts. Since current taxes are used to pay current beneficiaries, allowing younger workers to invest their taxes will require a replacement form of revenue to protect current retirees. But given Social Security's unfunded liabilities, the transition does not really represent a new cost. It is just making explicit an already-implicit debt.

Of course, it would mean paying that debt now rather than later. It is true, therefore, that reforming Social Security will increase short-term budget deficits. But it will save trillions of dollars in the long term. In many ways, it is like refinancing your mortgage. Sure, you have to pay the points up front, but you save money in the long run.

Federal budget deficits are not a good thing. But letting current deficits stand in the way of Social Security reform is to saddle our children and grandchildren with a much bigger bill.