Friday, February 04, 2005

Back in the day.

Barry Goldwater, a real conservative who said what he meant, wanted to make Social Security 100% voluntary.

George Bush, used car salesman, figures he'll try making one-third of Social Security sort of voluntary.

Given all the talk of transition costs these days, let's imagine what it would take to allow some people to "opt out" of Social Security. Suppose you could choose to opt out, but you had to pay your share of the burden of paying benefits for everyone who has paid in to the system and has benefits owed to them.

What would your tax rate for those contributions have to be? With a rough, back of the envelope calculation, I calculate a liability of about 70% of GDP, or somewhere around $8.5 Trillion bucks, current value. That works out to about $31,000 bucks per capita, or $120,000 for a family of four, to immediately shut down Social Security but continue paying all benefits accrued.

OK. So, if you want to let someone now entering the workforce to voluntarily opt out of one-third of SS, you'd still have to charge them something like $20,000 bucks to cover their share of the legacy obligations to people who have already paid in to SS, and ALSO "claw back" one-third of their traditional Social Security benefits.

This is all back of the envelope calculations. But it does sound like people who are only going to be charged 3% real interest rate against full benefits in order to be allowed to voluntarily forgoe one-third of their Social Security obligations would be subsidized by everyone who stays in the system by about $20,000 bucks apiece.

If we weren't going to subsidize them, we'd have to charge a good deal more than just a 3% "clawback" for people voluntarily opting out of one-third of Social Security benefits.

But instead, it sounds like this will mostly be paid for by huge benefit cuts for everyone in the system, as well as a big runup in the federal debt.

Those huge benefit cuts will inevitably mean more people will want to stop participating in Social Security, since it will become a worse and worse deal.

Would the last person out, please turn off the lights? And hey, seniors, don't worry, your benefits will not be cut!


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