THE POLITICAL BENEFITS OF SOCIAL SECURITY REFORM
February 22, 2005
While the economic benefits of restructuring the Social Security system are up for debate, President Bush's privatization plan has enormous political advantages, says Gary Becker, Nobel laureate and economics professor at the University of Chicago.
The Social Security system has grown from a saving system to "an inefficient and complicated welfare system," says Becker:
- People are living longer, but political pressures have created a system that encourages early retirement; many Americans retire at age 62 or even earlier.
- The link between contributions and benefits is weak; in fact, each additional dollar paid in Social Security tax yields only about 40 cents in additional benefits.
- Further, Social Security tax revenues will fall below spending on retirees' benefits in less than 20 years.
However, a system of privatization would:
- Reduce government's role in determining who retires and at what income level.
- Reduce the incentive for government to raise payroll taxes and spend more of the system's reserves, especially if privatization is combined with a payroll tax cut of a few percentage points.
- Restore the link between savings and future benefits.
While Becker notes that there is no guarantee that government will interfere less in a privatized system, evidence shows that government will back off when an industry is privatized.
Source: Gary Becker, "A Political Case for Social Security Reform," Wall Street Journal, February 15, 2005.
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