Wednesday, May 20, 1998

New voices call for privatizing Social Security

After a year's study, a 24-member, bipartisan commission that included Hardin-Simmons University President Dr. Lanny Hall has unanimously recommended that 2 percent of each recipient's 12.4 percent Social Security payroll tax be initially invested after some accumulation in either a stock or bond fund. Thus, one more voice has been added to the growing number that no longer find privatizing at least part of the system anathema, but instead see it as irresistibly logical.

The commission, made up of business leaders and scholars as well as four Republican and Democratic members of the House and Senate, would also ultimately raise the eligibility age to 70. Taken as a whole, the plan is moderate -- almost timid -- although it could be, if implemented, a first step toward saving Social Security, increasing savings of recipients and keeping most benefits reasonably intact.

Bolder plans

Bolder privatization plans exist, though, and should be discussed. One comes from William Shipman, a principal at State Street Global Advisors who has written a book on the subject as well as co-authored a publication distributed by Cato Institute, a Washington think tank. His ingenious notion should put to flight those critics who think you can't trust private markets as much as government.

Shipman would like a system in which all recipients are free to invest in one of several balanced portfolios if they choose. If those who opt out of the government system fall short of what they would otherwise have received from Social Security when they retire, the government will make up the difference. Consequently, recipients get the same guarantee they get now.

Unless Armageddon occurs, the government would not be at risk, however. Considering the average 10 percent return of the market -- and even calculating the worst drops over given months and days -- it's just not going to happen that recipients will earn less than they get back now for the amount they invest. And under this plan, they would get to keep all they earn in excess of the government promise.

Some reform of the system is imperative. As President Clinton's budget document states, the so-called trust funds will have "a cash imbalance in 2012." The budget document also points out why -- because of pay-as-you-go financing and demographics. It notes that, when the baby boom generation retires, only two workers will eventually be paying for each retiree.

Without getting a return on Social Security dollars, either gargantuan tax hikes or drastic benefit cuts are going to be necessary. More and more people are seeing that privatizing is the only way out. The question now is becoming: Which privatizing system will work best?