Saturday, January 22, 2005

The latest liberal spin on Social Security is that there is no problem. Of course, there is no problem with any obligation if you are willing to welsh when time comes to pay it.

Politically, the bottom line of this approach is that President Bush’s plan is “not a magic bullet,” in the words of BusinessWeek magazine. When people start talking about how this or that policy “is no panacea” or “not a magic bullet,” you know their argument is not serious.

Why don’t we all stipulate, once and for all, that no policy on any subject, anywhere or anytime, is a panacea or a magic bullet? Then we can start talking sense like adults.

If we are serious, we can compare one alternative to another, instead of comparing one alternative to perfection. How are the private retirement accounts the president proposes different from the Social Security system as it exists now?

The biggest difference seems to get the least attention: With private accounts, money is invested in the economy, creating additional wealth, from which pensions can be paid. With Social Security, the money is spent as soon as it gets to Washington.

Is it better to invest for the future or to keep spending the Social Security taxes now and leave it to someone in the future to figure out what to do when today’s young workers retire and there is not enough money to pay them what was promised?

Many people are unaware that the money taken out of their paychecks for Social Security is not — repeat, not — being put aside to pay for their retirement. That money is paying for people who are retired right now, and funds left over are spent by politicians in Washington for anything from farm subsidies to congressional junkets.

There is a legal and accounting fiction called the “Social Security Trust Fund.” All this means is that the Social Security system gets government bonds in exchange for the Social Security tax money spent today instead of saved. But you cannot spend and save the same money, no matter what accounting gimmicks you use.

Government bonds are not an investment that adds to the country’s wealth. They are a claim on future taxpayers. Without those bonds, future taxpayers would still be on the hook to pay future Social Security pensions not covered by future Social Security taxes. The bonds change nothing.

The other big difference between privatized pensions and Social Security is that the individual owns the pension he paid for: not a fine philosophical distinction but a major practical difference.

No matter what the law says or promises when you pay your Social Security taxes, Congress can pass a new law changing all that any time it wants to. Congress already has done so, and those who say there is no problem with Social Security also say, as BusinessWeek does, that “tax hikes” and a “reduction of the benefit” can fix the Social Security problem.

Of course it can. If you owe a million dollars, that is no problem if you can pay it off for whatever you can comfortably afford. But most creditors take a much narrower view.

If I tell the bank I can’t afford to make the mortgage payment because my income is not as high as I expected, they will throw me out in the street and take the house.

But no matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.

Owning your own private pension plan means those who owe you must pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of the government keeping the money.

Liberals are desperate to keep Social Security as it is, because that would mean they can continue spending your money as they see fit and keep you dependent on them. That’s what the welfare state is all about.

Thomas Sowell is a nationally syndicated columnist.

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