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Social Security: Economists Call for Realism


Three economists issued statements Friday warning against unrealistic scenarios for privatizing Social Security. The researchers took aim at a new book put out this week by the Cato Institute (Common Cents, Common Dreams) which argues for privatization. They are available for interviews on Social Security policy options.

Professor of Economics at Bryn Mawr College, Du Boff commented: “If no changes are made in the structure of Social Security taxes and benefits, the system will still be able to pay 75 percent of Social Security retirement benefits due in the year 2032. This potential gap can be closed by small adjustments in taxes and benefits phased in over the next 34 years. And this scenario is based on the pessimistic assumption that U.S. economic growth over the next 75 years will be less than half of our historical rate of 3 percent per year. A ready solution to the Social Security financing problem is at hand: taking the cap off earned income subject to FICA taxes. Currently, FICA taxes of 6.2 percent are applied to earned incomes up to $68,400 — meaning, for example, that Bill Gates probably stops paying FICA taxes sometime during the first week of January. Extending the tax to all incomes without limit would do the trick.”

Zuckerman, co-author of a study titled “The Impact of Social Security Reform on Women,” said that Cato touts “a drastically changed Social Security system consisting of private accounts that are too good to be true. And they are. The report focuses on the strengths of the private system it describes, and ignores all the problems. Cato says almost nothing about the insurance that Social Security currently provides to those with the greatest need, the lowest income workers, divorced women who were formerly full-time homemakers, and individuals who are mentally or physically disabled. If everyone gets a personal account based on their earnings, some will not have any accounts, and some will run out of money years before they die.”
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An economist with the Economic Policy Institute, Baker said: “Cato should be credited for using the word ‘dreams’ in describing their privatized Social Security system. They have the country switching to a privatized system with no transition taxes whatsoever. In fact, such costs will be substantial. Second, their system would have administrative costs. The administrative costs in their model, the Chilean system, have been approximately 15 percent of annual contribution. If the same cost ratio were applied to a privatized U.S. Social Security system, it would mean that workers would waste more than $50 billion a year lining the pockets of Wall Street financial houses. By comparison, the current system costs less than $3 billion a year to administer.”
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For more information, contact Sam Husseini at the Institute for Public Accuracy; (202) 347-0020.