Saving Social Security

2012 is a watershed year for the social security system.

That is the year that outlays begin to exceed receipts as the front edge of the baby boomer generation reaches the age of eligibility for retirement benefits. It's only three years away.

There was supposed to be a trust fund built up from surplus payroll tax collections over the last 20 years, but the government used that money for other things. The piggy bank is empty.

A 2007 government study reports that the social security system is underfunded by $6.8 trillion dollars - that is the size of the gap between social security taxes collected and benefits paid out over the next 75 years.

That shortfall must be bridged by either a) increasing payroll taxes from the current 12.4% to nearly 40%, or b) by cutting benefits in half, or c) by greatly extending the age of eligibility. Or some mix of all three.

So here we are, just 3 years from going over the brink, and did you hear social security mentioned by either party in the election just past? Radio silence.

The reason you did not hear democrats or republicans talk about their plans for fixing social security is that they have no plans. At least Al Gore had that loopy lock-box idea in 2000 - that was better than nothing.

The only way to save social security is to make it voluntary, and transition it from a universal public pension system to a system of personal retirement accounts.

Workers would choose to either stay in the current system or to opt out and contribute to their own personal retirement accounts - money they would own and control, similar to the way 401(k) plans work today.

For a transition period of 20 years or so, those who opt out would gradually shift their payroll contribution over from 100% funding of the current social security system to 100% funding their own personal retirement account.

Viewed as an investment, the current social security system is lousy - a return of around 1% on the amount paid in to the system. Workers in their 40's who opt out, would get a return double that of the existing system. Those in their 20's would see returns 3 to 4 times what they would receive under the current system, assuming there would be a system for them to receive benefits from - a dubious assumption.

Workers who choose to remain in the current system will receive the benefits promised to them. Workers who opt out would get a better return on their payroll tax contributions. Current retirees would not have their benefits cut. Everybody wins - except of course, the government bureaucrats who would give you back control over trillions of your own dollars.

Converting from a current-pay social pension system (like social security) to a individually owned retirement savings accounts is not impossible - many nations have done so recently, Chile and Great Britain come immediately to mind. Chile did it in 15 years.

In 1994, the World Bank urged all nations to privatize their retirement security systems to encourage economic growth. Had we acted then, it would have been a much more comfortable transition period, and it would have been less costly.

Yes, there is a cost associated with transitioning over from one system to the other - it has been estimated at $5-6 trillion. That is less than the cost of doing nothing, which would be $7 trillion.

And the transition cost can be paid by selling some of the more than $6 trillion of federal government lands. And no, I'm not talking about selling Donald Trump Mt. Rushmore or Arlington Cemetery, I'm talking about the millions of acres of undeveloped dirt that you drive through up North and out west - the scenery you miss while you are sleeping on the drive.

A federal land sale would not only fund the transition to private retirement accounts and save social security, but it would also alleviate state and local budget deficits by adding trillions of dollars to the property tax rolls.

That's a Libertarian answer to a problem made intractable by the two major parties. Do the Republicans or Democrats have a better idea? Why not ask them, and see what kind of answer you get.

Vote Libertarian.