Friday, March 27, 1998

Response to Michael Tanner of Cato

I agree with a great deal of what Mr. Tanner says in his look at the future of Social Security (The Washington Post, Outlook, March 22, 1998). However, his analysis, along with most such analyses on privatizing Social Security, ignores the central strength (and conservative criticism) of the program, which is it’s leveling effect. This effect is caused by the pooling of payments by all beneficiaries, who receive a standard payment. This subsidizes poor workers at the expense of the more well off, hence the criticism of the program and the desire to tie benefits solely to income by the privitizers. Yet, without the leveling effect, no privatization will survive the legislative process and will fail in implementation. If passed without leveling, privatization will throw millions of my generation into certain poverty upon retirement and widen the gap between rich and poor.

An alternative is to have employees continue to pay a 6.2% to 8% share, which will go to the purchase of company voting stock, a qualifying 401(k) plan, or some combination of the two at the choice of the employee. An 8% share, with all funds going to purchase stock or a 401(k), should be acceptable to most employees, especially those in my generation. The employer will provide the leveling effect by paying equal contributions to each worker, based on the average of all employee contributions. This plan will ultimately lead to employee ownership, which will lessen the need for government interference in the work place and the market place.