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April 17, 2005
Back from Hawai'i
I'm back from a week in O'ahu visiting my sister and brother-in-law. In case you didn't know, having family living in the state of Hawai'i is a good thing.
While I didn't have computer access to update the website, between the beaches, snorkeling, and some studying for the CFA I did find time to write this letter to the Honolulu Advertiser on Social Security reform. We'll see if it get's published:
Dear Editor:
Visiting family this last week in O'ahu made me realize how many similarities the island has to my home in San Diego. There are great beaches, friendly people, and of course… a lively debate over Social Security.
For example, in his April 13th letter, John Williamson lambastes Rep. Galen Fox for misrepresenting facts about the Social Security trust fund. It is surprising then that he did not hold himself to the same standard of truthfulness.
A few quick points. First, Williamson states that although Social Security will start running deficits in 2017, there is no need to worry as we can draw on the trust fund until 2041. But Williamson conveniently ignores the source of revenue for these bonds. In 2017, when the Social Security Administration takes the bonds currently in trust fund to the Treasury for redemption, where will they get the money?
As Rep. Fox pointed out, the money in the trust fund has already been spent. Today's Social Security surpluses go to aircraft carriers, managing national parks or whatever else the government needs. To account for this spending the Treasury places a bond in the trust fund for the amount of the surplus it has consumed.
But since both the Treasury and the SSA are different arms of the same federal government, by definition, it owes this money to itself. It follows that when the SSA does need to collect on these bonds, the government will have only three choices for revenue: 1) issue more debt, 2) divert money from other government programs, or 3) they can raise taxes. There is no other way around it.
Secondly, Williamson leaves the impression that when the trust fund does run dry, 80% of the benefits will continue to be paid. But if in 2041 we decide to keep benefits unchanged for those in or near retirement (age 55 and above), this would mean cutting benefits by 2/3 for everyone else in the system. Can anyone seriously argue that this would be fair to the younger generation?
One fact that everyone should be able to agree upon is that the Social Security system is in need of reform. Instead of passing this political hot-potato off to our children and grandchildren to deal with, let’s tackle the problem head on. We have the opportunity to create a system that continues to ensure a social safety net, while at the same time allowing all Americans to accumulate real wealth in private accounts.
It’s a noble goal and I commend Rep. Fox for speaking his mind on the issue.
Peter MorkSan Diego, CA
Posted by Peter Mork at April 17, 2005 12:57 PM
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