Think tank director urges Social Security system reform

STRATHAM — The United States is lagging behind much of the world when it comes to privatizing Social Security, according to an advocate of reforming the system.

“We are going to be the last country except for France that does this,” said Michael Tanner of the Cato Institute.
The system created by President Franklin Roosevelt in 1935 no longer fits in the 21st Century, according to Tanner. Thanks to longer life expectancy, the ratio of workers contributing to the system to retirees drawing from it has shrunk from about 40 to 1 to about 4 to 1.

Now, 12.4 percent of workers’ income goes into Social Security, according to Tanner, a number that he said will only get increasingly dire — eventually exceeding 80 percent for today’s 30-year-olds. Further, the return on the investment has fallen to about 2.2 percent and continues to shrink, he said.

“The Social Security system we have today is not sustainable,” he said.
The system he advocates would allow workers either to remain in the traditional system or place a portion of the money into individual accounts with “a limited range of broad-based investments,” avoiding high-risk stocks. Those with private accounts would be allow to make transfers, but all workers would be required to participate in either Social Security or the new system.

Over time, the system would “smooth out” the up-and-down market cycles, he told an audience member who was concerned about the risks of the stock market.
As a model, he held up Chile, which he said turned to private investment accounts proposed by U.S. academics who were brought in to help after its economy collapsed. Much of the rest of the world has followed suit, he said, including China and democratized countries such as Britain and Australia.

“This is something that can be designed fairly easily,” he said. “This is a matter of political will.”