Merrill Matthews is a resident scholar with the Institute for Policy
www.ipi.org) in Dallas.
DECEMBER DEBATE RESULTS:
Is it OK to thank
people by email?
HARDLY ANYONE under the age of 30 thinks Social Security will be
there when they retire. (For that matter, not many middle-agers expect to
draw from it either.) And they may be right, because the situation just got
In 2010 President Obama and Congress passed legislation that cuts
what workers paid in 2011 Social Security payroll taxes from 6. 2 percent to
4. 2 percent of their income. While the extra take-home money was surely
appreciated by millions of Americans, it means they contributed about $110 billion less to the
Social Security Trust Funds—which was already facing insolvency soon.
Now the president and Congress want to extend, and perhaps expand, the payroll tax cut, fur-
ther depleting the trust funds. And yet the Social Security Administration already warns workers:
It should be increasingly clear that the only way future retirees will have any money for retire-
ment is if they save it themselves, which is why we need to move away from the current pay-as-
you-go Social Security system—where current workers pay current retirees—to a system of
pre-funded personal accounts that belong to each worker.
Fortunately, three Texas counties provide a model. They opted out of Social Security 30 years
ago by creating what I call a “banking model” rather than a 401(k) model. Workers and their
county employers contribute the same amount as they would under Social Security, but the
money is pooled and invested with highly rated financial institutions, which guarantee a minimum return. If the stock market does well, the accounts do well; but if the market tanks, the
accounts still make 3. 75 percent—a real plus during economic downturns. At full retirement,
workers in these three counties (Galveston, Brazoria and Matagorda) get roughly twice what
they would receive under Social Security—and the money belongs to them.
Social Security may have worked well for decades, but a changing and aging population has
made it unsustainable. The only way to ensure retirement security is a system of retirement
accounts that individuals, not the government, own and control. C
Percentage reflects votes
received by December 31, 2011.
NOVEMBER DEBATE RESULTS:
Should the mortgage interest
deduction be phased out?
YES: 26% NO: 74%
Percentage reflects votes received by
November 30, 2011. Results may reflect
Debate being picked up by blogs.
from an expert in the field:
Greg Anrig is vice president of policy and programs at The Century
www.tcf.org), a public policy research institution based in
New York City, and is co-editor of Social Security: Beyond the Basics.
FOR MANY OF Social Security’s 76 years, large segments of the American
workforce were excluded from the program. The program was transformed
to the near universal system it is today through multiple amendments that
extended coverage to different categories of workers. Those changes, which
were signed into law over the decades by both Republican and Democratic
presidents, arose from political pressure from Americans who wanted to
receive Social Security’s protections even if it meant paying higher taxes.
The expansion of Social Security to cover virtually everyone worked. Before 1960, the poverty
rate among the elderly exceeded 35 percent. It has since declined to just 9 percent, even in the
aftermath of the Great Recession. If Social Security didn’t exist, more than 45 percent of the elderly
would be in poverty.
Social Security’s universality has greatly enhanced the independence and freedom of all workers by providing an essential, albeit modest, source of reliable retirement income and family insurance in the event of disability or death. For example, the share of elderly widows living with adult
children declined from 60 percent back in 1940 to 20 percent today due to Social Security’s expansion. The retirement program’s economies of scale keep its administrative costs at a minuscule 0.6
percent—far below private-sector insurance and investment plans.
Proposals to enable workers to opt out of Social Security so they can invest the money independently run a great risk of undercutting the program’s proven effectiveness as a universal
system. Recently, thanks to the collapse of the housing market, the financial crisis and the Bernard
Madoff scandal, millions of families ended up losing cushions they considered to be safe. The
same no doubt would happen to at least some workers who opted out of Social Security. But they
would no longer have the program’s protections to fall back on.
Not only that, we as a society would also lose the cohesion that comes with sharing a commitment to keeping our older population from impoverishment—a goal we have come so far in
accomplishing. The public recognizes the virtues of the existing system. A recent poll showed that
79 percent of Americans believe that Social Security has been good for the country, compared to
just 15 percent who think it has been bad. Messing with success is never a good idea. C
FEBRUARY 2012 The Costco Connection 19
Opinions expressed are those of the
individuals or organizations represented
and are presented to foster discussion.
Costco and The Costco Connection take
no position on any Debate topic.