About a month or so ago, I wrote a column in which I briefly mentioned that any plans to privatize Social Security would never work, and I said I had covered that topic in prior columns. Well, several readers told…
covered that topic in prior columns. Well, several readers told me they didn’t remember those older columns , and they asked me to address the topic again. So, here goes.
People are also reading… Or put it another way: Social Security makes up about one-fourth of the entire federal budget of the United States. You just don’t take a quarter of our country’s budget and put it on Wall Street. After all, would you want the federal government, via the Social Security trust fund, to be the major owner of Chevron stock or the primary investor in Phillip Morris?
But the difference lies in the funding details. In a carve-out plan , the worker’s IRA investment would be funded with a portion of his or her Social Security payroll tax. For example, currently 6.2% of a worker’s salary is deducted for Social Security taxes. A carve-out plan might specify that 4.2% continue to be used to fund Social Security while 2% would be funneled into the private account. In other words, this plan gets its funding by carving it out of the current Social Security system.
The upside to “carve-out” proposals is that no extra financial burden would be placed on young workers to finance the supplemental benefits. But the often-unexplained downside is that huge reductions would be necessary in future Social Security benefits. It’s just simple math.
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