OPINION:
Trump Accounts aren’t just for children. Grown-ups may get their own version of them, which would be a huge help for anyone trying to save for retirement. Such a move could transform Social Security from an IOU from Congress into real, private-sector assets you own and control.
Every American should be paying attention because Social Security is going bankrupt. The latest report from the program’s trustees says we’ve got just six years until benefits are cut by 20-25%.
That may come as a surprise to those who’ve paid Social Security taxes their whole lives and expect their promised benefits. The reality is that they’ve paid into a Ponzi scheme.
Social Security was always set up so that the taxes collected from today’s workers fund the retirement benefits of today’s retirees. It’s not as if those receiving Social Security checks are getting money from some kind of account with their individual names on them.
As with any Ponzi scheme, exponential growth kept the scheme going. But as America’s population growth slowed, the fraud was exposed. The path to insolvency accelerated as Congress wasted trillions of dollars on pointless wars abroad and corruption at home, à la Somali “Learing” Centers. The result is a $29 trillion hole of unfunded liabilities for Social Security.
Democrats’ solution, naturally, is tax hikes and cutting off wealthier people who paid the most Social Security taxes. President Trump wants to shift the program towards 401(k) and IRA models, where you can invest the money, earn a real rate of return, and keep it.
It’s a model that has generated nearly $30 trillion of assets in IRAs and 401(k)s—almost the exact opposite of the $29 trillion of debt in Social Security.
The details on proposed adult accounts are still coming since Trump accounts for kids were launched. The latter has $1,000 in seed money per account in what is essentially an IRA for children, to which you can contribute an additional $5,000 per year. That may not sound like much, but if you’d done that for today’s 18-year-olds, they’d each have $409,000.
That’s not a bad financial start to adulthood. In fact, it’s more than the median-priced home in many markets, so you could buy it with cash to start a family. More importantly, these accounts give children a stake in the free-market system that Democratic Socialists are currently trying to replace with breadlines.
President Trump wants to do something similar for the grownups, modeled on Australia’s superannuation system, where Social Security taxes would go into an account you actually own and invest as IRAs and 401(k)s. Your money would grow through private-sector investment rather than being wasted by Congress.
In Australia, it’s built up over $4 trillion in Australian dollars—in U.S. population terms, about $45 trillion. Translated per American household, that would be about $350,000 in assets instead of $200,000 of Social Security debt.
The problem is Mr. Trump needs Congress’s help to do this, and Congress thoroughly enjoys blowing your Social Security on “Learing” Centers and foreign wars. That’s especially true for Democrats, who’ve fought private accounts and private investment for decades, since, apparently, they don’t want workers to own the means of production. Ironic.
Another problem is the existing $29 trillion hole in Social Security, which would require Congress to slash spending for a couple of decades to make up the shortfall. That’s a painful prescription for Washington’s drunkest sailors, but keep in mind that $29 trillion is projected to increase to $72 trillion if nothing’s done.
For 90 years, Congress raided the Social Security Ponzi scheme, leaving it with IOUs that are about to run out. Shifting to an IRA-type system would transform the program from a black hole to a respectable retirement. The icing on the cake is that it gives young Americans—who’re flirting with socialism—a stake in the system that keeps us all from starving.
• Peter St. Onge, Ph.D., is senior economist and E.J. Antoni, Ph.D., is chief economist at the Heritage Foundation.
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