Social Security Is Still a Hopelessly Bad Deal for Today’s Workers

The argument that Social Security is a bad deal for today’s workers and that they would get higher returns and benefits by investing through personal accounts instead has gained broader and broader acceptance. This view has greatly fueled reforms and proposals in the United States and abroad that are based on personal, private investment and insurance accounts.

However, the National Committee to Preserve Social Security and Medicare recently released a voluminous study by John Mueller arguing that Social Security would provide higher returns and benefits than a system of personal investment accounts for all workers today, of all income levels and family combinations. That conclusion, directly contradicting a wide range of analysts, institutions, leaders, and countries around the world, results from extreme and untenable assumptions:

Mueller assumes that the returns to workers investing in the stock market will be 77 percent less over the next 75 years than stock market investors have earned over the past 75 years.

He assumes that over the next 75 years investors will get a negative real return on corporate bonds, down dramatically from the 3 to 4 percent real return that has prevailed over the past 75 years.

He projects that the rate of economic growth over the next 75 years will decline by over 50 percent compared with the past 75 years, and he fails to account anywhere for the increase in economic growth that would result from Social Security privatization.

Mueller assumes administrative costs for personal retirement accounts that are more than two times and probably over five times what the costs would likely be in the early start-up years, and 25 to 50 times what the costs would likely be in later years.

Mueller assumes a transition financing plan that imposes increased taxes on workers and their retirement accounts, failing to recognize studies showing how the transition could be financed without higher taxes or effective reductions in the projected benefits from the personal accounts.

Mueller fails to take into account the before-tax, real rate of return to capital, which measures the full, net benefit produced by the private capital investments made through the personal retirement accounts.

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