Contrary to what many people think, this impending bankruptcy of Social Security is not due to the fact that the Federal government merely issues the Trust Funds paper IOU's and then uses the surpluses to pay for other government programs. While I do not think that it is appropriate for the Federal government to use the Trust Funds in this way, this practice is not the root cause of the problem. The Federal government must find a way to honor these IOU's to the Social Security Trust Fund just as we are now doing for the Medicare Trust Fund which is running a deficit and is expected to go broke in 2001. The problems with Social Security go much deeper. The demographics have changed. There are now far fewer workers for each retiree than there were when the system was established in the 1930's. In addition, we cannot continue to raise payroll taxes as we have repeatedly done over the previous sixty years. Finally, our economy no longer grows at the rates that it did earlier in the post-war period. This means that the tax base for Social Security no longer grows as fast. All of these trends together mean that future retirees cannot expect to get the same returns from Social Security that present retirees have gotten. While present retirees receive benefits in excess of their contributions even when compounded by a market rate of return, future retirees will not be able to receive such generous benefits.
I am willing to look at any option to reform the Social Security system which will continue to help current retirees but will preserve the program for future generations of retirees. One option that has been mentioned frequently in recent years is to invest some or all of the Social Security contributions in the stock market. This option is attractive because, on average, the stock market has historically provided much higher returns than Treasury bonds. One concern that I would have under such a system is the degree of control that the government may gain over private corporations. If we allow the government to pick the corporations in which to invest, wouldn't there be a tremendous temptation for politicians to pick socially desirable projects or politically friendly companies? Would it be more advisable to allow individuals to invest their own contributions? Or should these funds be invested in something broad-based like the S&P 500 index? I look forward to hearing the panel members comments upon these and similar issues.
I would like to enter into the record a Wall Street Journal article that discusses the efforts
that Britain has made to reform its retirement system. Just as other nations around the world
have begun to examine their retirement systems, we can no longer afford to ignore the problems
with Social Security. We must be honest with the American people. We must now start the
discussion about what we need to do to reform this broken system so that we can preserve the
Social Security system for future generations of retirees.
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