February 28, 2005
The Social Security program neither saves nor invests; therefore, it is not a good vehicle for wealth creation, says John F. Cogan, a senior fellow with the Hoover Institution and a member of the President's Social Security Commission.
- The federal government does not set aside surplus payroll taxes for the future.
- It does not use the surplus funds to lessen the national debt burden on future generations.
- Instead, driven by chronic election-year-induced myopia, elected officials regularly spend Social Security surpluses on expanded general government activities.
This fact bears repeating: Whenever the Social Security program has more money coming in than it is required to pay out, the federal government spends the surplus. This behavior is neither new nor is it unique to the current Congress, says Cogan:
- During the 1950s, 1960s and early 1970s, surplus payroll taxes were used to finance benefit increases.
- Since the 1980s, surplus payroll taxes have been used to finance expansions in government activities unrelated to Social Security.
- The fact that Treasury bills representing surplus revenues are printed up in Parkersburg, W.Va., and placed in a "trust fund" does not mean that the government has created a financial asset.
- Instead, it signifies only that the government has counted the money twice: once as an additional outlay and once as an addition to Social Security's assets; a financial "two-fer" that would be illegal if used by a private corporation.
President Bush's proposal is the only sound way to ensure that current surplus payroll taxes aren't spent and are instead set aside and saved. The accounts would be workers' private property to be used exclusively to provide for their own retirement income. Ownership and control over the accounts would reside with workers, not the government, says Cogan.
Source: John F. Cogan, "Spend-As-You-Go," Wall Street Journal, February 28, 2005.
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