Due to the aging of the baby boom generation along with increased average life
spans of American citizens, the current system
of social security is headed for bankruptcy, meaning it will no longer generate the funds necessary to meet its obligations
to retirees. Democrats and Republicans debate the actual timing of this insolvency, but no one disputes the fact that
changes must be made eventually to keep the system going. Because the system is
severely underfunded, one of two courses
must be made at some point: 1) raise taxes to increase revenue generated, or 2) cut back on benefits paid out.
Former President Bush first popularized a new idea -- private accounts.
Currently, employees pay 6.2 percent in social security tax, which is matched by another 6.2 percent paid by the employer. Under
several Republican plans (or rather their adaptation of an idea that's been used in Britain,
Argentina, Australia, and Chile and proposed in the past by President Clinton
and Senate Minority leader Harry Reid), employees would be able to take a
certain percent (e.g. 4 percent) and put it into a special private account they own, and for which the
government can never touch (with the other 8.4 percent staying in the general
trust fund). This private account could be invested in a number of mutual funds which
could include stocks and bonds (in addition to no-risk investments such as treasury instruments). This private account would be
to next of kin upon death. Since investment in stocks and bonds are historically much higher than the return currently
earned by the government system, advocates are convinced that the additional earnings of private investment will more than
make up for the cutback in benefits.
Individuals who die early and don't recover all they paid in can pass on funds to their next of kin.
A person who earns an average of $40,000 during their working life (age 18-65) will pay a total of $233,120 in
social security taxes after you add in the business share. If that money had been invested in conservative investments
that earned 5 percent, you'd have $883,472 by the age of 65. At a 10 percent return, that person would accumulate
$4,324,995 by age 65! How much does that person get if he dies before collecting his benefits? Zero. The money
belongs to the government. He has no power to leave it to charity or put it in a trust fund for a grandchild's
college. Under the private account plan, you would own the money in your private account. The government could never
touch it, and you'd be allowed to dispose of it in your estate just like any other asset.
Billions of dollars will be injected into corporate investment, leading to an economic stimulus.
Every economist will tell you that the key to growth is new investment. Economic growth leads to lower unemployment,
lower inflation, and a greater standard of living for society as a whole. The implementation of private accounts
would mean a significant amount of money would be invested into the private sector. And since money could be shifted
around, the most efficient and successful companies would gain additional investment funds. One of the best
"leading indicators" of a successful U.S. economic upturn or downturn is the U.S. stock market. Experts almost
unanimously agree that the stock market would go up with the use of private social security accounts. One of the
foremost economic experts in the world is Fed Chairman Alan Greenspan; he happens to support the idea of private