Monday, March 28, 2005


A truly modest proposal

So without further adieu, here are a few of the details of my proposal. Please note, that this is pretty identical Allan Sloan's 3/29/2005 opinion in The Washington Post (also called "a modest proposal." Be damned, that clever Swift.)

First, 2 pieces of background:

* Currently, collected revenue from social security taxes exceeds payment of social security benefits

* That excess is lent to the government (i.e. the Social Security Administration buys U. S. Treasury bonds)

My proposal would be to allow the SSA to use this excess revenue to invest in a vast portfolio of stocks instead. This portfolio would not be imputed to individuals (i.e. there will be no Individual Retirement Accounts) but the dividends and capital gains would be used to fund future SS payments.

What does this achieve?

Stocks (~8%+) will produce a higher return than Treasury bonds (~5%). That might not sound like a lot, but by itself, this change would likely push the expected demise of the Social Security Trust Funds by quite a few years.

What about ownership?

This doesn't create any ownership, either through allocating funds to individuals, or enabling them to pass assets on in their wills. In a later post, I will attempt to say I don't favor such ownership.

Do we have to borrow to do this?

No. There exists the possibility that this won't close the funding gap, in which case borrowing, increasing taxes or reducing benefits still looms large as a possibility.

Aren't stocks more risky?

Yes. That's why the return on investment is higher. On the other hand, this plan would use the stocks to fund retirees decades from now (and should probably convert stocks to less risky assets as the need to use them draws nearer). While stocks are much more risky on a short-time horizon, they are less risky over a span of decades.

What other problems need to be addressed in this proposal?

There are plenty:

* Who chooses the portfolio (technocrats with Congressional oversight)
* Who sells the stocks (good question)
* Isn't there potential for fraudulent behavior (you bet)

I don't pretend that this is a fully fleshed out plan -- I just want my mythical readers to have a sense of where I am headed as travel.

As always, thanks for reading.

You say that you do not favor "ownership". I hope that you will address a question I have about whether the plans that we are hearing about actually favor "ownership". I am somewhat confused about who is getting to own anything new.

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