Republican Candidates Debate Social Security
December 22, 1999
One of the more interesting debates in the presidential race is going on between Republicans Gary Bauer and Steve Forbes over the future of Social Security.
Demagoguery on Social Security has made it impossible to make any sort of rational reforms, even though all experts agree that the system cannot continue for much longer without fundamental changes.
A new report from the Federal Reserve Bank of San Francisco points out why change is needed:
- The real rate of return on Social Security contributions is now less than 2 percent.
- By contrast, the real return on U.S. Treasury bonds is about 3.5 percent, so that if workers simply invested their contributions in bonds, their retirement benefits would be sharply higher than what they will get from Social Security.
- Furthermore, to maintain longterm solvency, Social Security benefits must either be cut 25 percent or the tax rate will have to rise by almost 40 percent, from 10.7 percent to 14.6 percent.
- Either action will halve Social Security's rate of return to just 1 percent.
Despite the growing consensus that some sort of privatization is needed, Gary Bauer is attacking privatization and defending the status quo. Bauer, for whom I once worked, seems to have been put up to it by his economic adviser John Mueller, who makes much of his living writing studies defending the status quo for the National Committee to Preserve Social Security and Medicare.
Mueller, who once worked for Jack Kemp (as did I), even sold Kemp this same bill of goods. In 1987, Kemp attacked former Delaware Governor (now NCPA Policy Chairman) Pete du Pont, a rival for the 1988 Republican presidential nomination, on exactly the same grounds.
A new study for the Cato Institute thoroughly demolishes the Mueller Social Security argument. I strongly urge Bauer to read it before he says anything more about Social Security.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 22, 1999.
For Cato study
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