Mar

Upgrading Social Security

This is the second of six policy proposals I have written for conservatives looking to accomplish our long-term objectives of more freedom and less government.

Enhance the credit rights of Social Security: Instead of each person collecting Social Security from the government, every participant should have a private account holding real Treasury bonds in his or her name.

Under the current system, FICA taxes go the IRS, which then makes them available to the government’s general fund. Under the new system, the money would go directly from your paycheck into an individual fund managed by a company such as PIMCO or Vanguard. The fund would be legally barred from owning anything other than U.S. Treasury bonds. Without stocks or corporate bonds, the system would have the same risk profile as the existing Social Security program.

It would actually increase security for ordinary Americans by placing them on a pari passu (equal) status with foreign investors such as the Chinese and Japanese, who together hold 20 percent of the nation’s sovereign debt. (Foreigners overall owned 48 percent of outstanding Treasuries as of Sept. 30, up from 41 percent as recently as 2004.)

The existing system subordinates ordinary Americans to the foreign investors and the big banks that dominate the Treasury market. If Congress doesn’t have enough money to pay interest to the folks in Beijing, Tokyo and on Wall Street, they’ll reduce the payout to Americans on Main Street — simply by raising the income tax on Social Security benefits. Democrats have done it before, and they’ll do it again.

Under my plan, a lot of the the money paid to recipients would be from the return of principle rather than interest income, so it wouldn’t be eligible to get taxed at all. People would literally get their own money back.

This proposal would necessarily increase the fiscal deficit on paper because Congress now steals more than $900 billion a year from entitlement programs to cover its profligate spending. The good news is that this would force the government to clean up its books, producing a transparency that would be welcomed by investors and credit analysts already concerned about the country’s unfunded entitlement programs.

This idea would also make Americans feel like stakeholders in their own country again. As direct owners of Treasuries, they would be more included to resist excessive spending and debasement of the currency. It would also provide a boost to the asset-management industry.

However, the most important thing is that it would give Americans the same rights as the Chinese, Russians and Saudis. While that’s obviously anathema to the Democrat Party, it should be a key priority for the Republican Party.

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