Why Social Security Beats All Rivals -- And the Case for Expanding It

Why Social Security Beats All Rivals -- And the Case for Expanding It

by Robert Kuttner at The American Prospect

http://prospect.org/article/why-social-security-beats-all-rivals-and-case-expanding-it

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Social Security needs to be expanded. Though its projected shortfall after the mid-2030s gets a lot of attention and prompts calls for cuts, the 75-year deficit is only about 1 percent of GDP. That could easily be made up, by raising the cap on income subject to the Social Security tax, or adding new revenues from, say, a tiny tax on financial transactions.

Another way to improve the solvency of the system would be to increase wages, since Social Security is financed by taxes on payrolls. Had earnings kept pace with productivity, as was the case before the Reagan era, Social Security would be solvent indefinitely with no further adjustments.

Ideally, we should move to a partly funded system, as Canada does. The Canadian system is partly pay-as-you-go, like ours. But Canada's national pension system collects sufficient revenues to underwrite an expanding pool of invested capital—which in turn produces income just like a true pension system. Over time, returns on assets, now totaling over $264 billion, provide an increasing share of the system's payouts.

Social Security demonstrates that public systems are often better than their private counterparts—more transparency, fewer middlemen, less opportunism. The problem is that government-managed systems are only as good as their stewards, and one of our two major parties hates government. The only cure is stronger democracy, so that citizens who value good programs vote to elect leaders pledged to defend them.



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