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Change? Libertarians, Greens REPOSITION GOVERNMENT IN AMERICAN PSYCHE

October 12, 2008 12:17 am

LEESBURG

But, in particular, I think of one segment, in which (unless my memory fails me) Sheriff Buford T. Justice deems the pursuit of The Bandit (Burt Reynolds) insufficiently important to skip a meal. The sheriff runs into a roadside diner and orders a meatloaf sandwich, which he gobbles down while talking to the man seated next to him, who, unbeknownst to him, is the subject of his pursuit.

The Bandit eggs Sheriff Justice on to describe the ostensibly unlawful exploits of The Bandit. When The Bandit suggests the possible misconduct is insufficiently egregious, the sheriff turns to The Bandit and says, "Son, that's baby [poop] compared to what this guy's done."

The reason that I think of this scene is that for all of the (very valid) recent concern about high gasoline prices, the "credit crunch," the woes on Wall Street, and the resulting bailout bill (which I would have voted against), I think these problems are small potatoes when compared to this nation's main economic problem of the 21st century: our aging population and the coming entitlement spending explosion.

'TRUST' FUND

The year 2008 is of great importance on this issue because the earliest baby boomers are turning 62. Some started drawing on Social Security this year; all others will eventually follow. In 2011, this population cohort will become eligible for Medicare coverage.

Social Security will run a deficit by 2017, when its revenue will fall below the system's expenditures. And Social Security's trust fund means nothing. During all the years when Social Security was running a surplus, it gave money to the federal government's general fund in exchange for federal government bonds. When Social Security needs cash in the future, it will present these bonds to the federal government general fund for cash.

From where will that cash come? From either taxes or borrowing by the federal government. The bonds in the Social Security trust fund are not real assets.

Medicare's funding problem is worse than Social Security's: Medicare is already running a deficit. While the recent bailout bill authorizes the secretary of the Treasury--the identity of whom, as of Jan. 20, 2009, we don't yet know-- to spend up to $0.7 trillion to purchase "toxic" investments from financial institutions, the amount of money that will have to be placed in an interest-bearing account today to pay for Medicare's future projected deficits is $75 trillion. That is 107 times the amount authorized for the bailout and is five times the current annual Gross Domestic Product of the U.S.

BANK ON IT

All of this means one thing: The United States government will not honor the long-term promises it has made to its people on Social Security and Medicare. It will not do so, because it cannot do so. The future deficits of these programs are simply too staggering.

The question is: What to do? What we should do is to act as quickly as possible to reform these programs. The sooner reform is introduced and passed to put the retirement futures of the American people on stable footing, the less challenging the adjustment will be.

Oh, how certain defenders of the current Social Security system love to demagogue this issue. In their perversion of the English language, government spending is "investment" and actual investment is "gambling." Never mind that not once in every 20-year period since 1925 (1926-1945, 1927-1946, etc.) has the stock market delivered a negative return. And, of course, they know, but never mention, that there are no "guaranteed benefits" under the current Social Security system.

Congress has the power to change benefits at any time, and Social Security benefits are not inheritable, because Social Security "contributions" are really taxes that are property of the government once they have been paid.

MANDATED PARTICIPATION

Before getting to the details of my Social Security reform proposal, a question needs to be asked that very rarely is. Is there any reason that a free society should mandate worker participation in a retirement program? While I recognize that we are long past the decision point on this question, it still merits asking. In my opinion, the answer is "No," and, therefore, I think the proper direction of policy, at this point, is to allow workers to get out of the current Social Security system, if they so desire.

I support the Cato Institute's "6.2 Percent Solution" for Social Security, in which individuals would be able to invest 6.2 percentage points of their payroll tax in personal accounts, with the employer's 6.2 percent paying for transition costs and disability and survivors' benefits.

Workers who choose the individual account option would receive a "recognition bond" based on the accrued value of their lifetime-to-date benefits, but would waive their future Social Security benefits. Those bonds, redeemable at the worker's retirement, would be tradable in secondary markets. Under the "6.2 Percent Solution" plan, people would own their personal accounts and be able to pass them on to heirs.

S.S. SOLVENCY

According to the Congressional Budget Office, a plan like this would help restore Social Security to long-term solvency, while providing workers with higher benefits than would Social Security.

I want to emphasize, though, that people who want to stay in the current Social Security system could do so. Current retirees would receive their full, promised benefits. Current workers remaining in the system would likely receive their full benefits in the future, although if Social Security revenues were insufficient to fully cover them, there would be a reduction in future benefits.

As with Social Security, we need to move Medicare to a defined contribution, instead of a defined benefit, system. Medicare needs to be reformed with prepaid Medicare accounts for workers, so that they can save over their working lives for their own retirement health care. The prescription drug benefit (passed in 2003) should be repealed. Seniors should be allowed to opt out of Medicare entirely without losing Social Security benefits, as well as on a case-by-case basis with their doctors.

We need to restore power to patients by giving Medicare recipients vouchers, which could be supplemented with private funds, to purchase health insurance from competing private insurers or to deposit in a health savings account to save and spend on health care in the future.

Reducing federal government spending and transitioning programs (e.g., education and transportation) to the states will help cover the costs of these proposed reforms to Social Security and Medicare. To do that, we may need to reposition government in the American psyche.

For too long, the American people have been unable to distinguish between that which is good and that which is just. They think that which is good is just, which is not necessarily so.

There is an infinite amount of good to be done in this world. And by positioning government as an agent for good instead of an agent for justice, government is given license to become involved in every nook and cranny of our lives. With that, the whole limited-government ball game is over, and our economic as well as our personal freedoms will be forever in jeopardy.

The time is more than ripe--it's critical--for Congress and the next president to address the near-term eruption of entitlement spending. There are different ways to do that. Let's hope they do it in a manner that enhances our freedoms and this nation's future economic performance, and ultimately provides for more financially secure retirements for the people of our nation.