Why the left should support partial privatization of Social Security
Short Answer #1: It will eliminate the possibility of Bush's regressive tax cuts becoming permanent.
Short Answer #2: It will make money for future retirees, even if the stock market performs half as well as it has done historically.
Short Answer #3: Bush will screw it up just like everything else he does; this is a chance to propose something useful.
Please refer to the September 10 post below about the current Social Security surplus and whether the surplus is real, if you're interested in background. The main point I take from it is that the current SS surplus is real, but will entail problems in the future when the obligations created under current surpluses come due, and meanwhile Bush is using that surplus to hide the true size of the deficit he's created. There, now you don't have to read that boring post.
So this is why Short Answer #1 is important. If you partially privatize the SS surplus, then the current budget deficit is shown in its true awful colors. Bush's tax cuts will sunset in 2010 unless made permanent, as he is trying to do, and the income tax cuts are highly regressive, while the estate tax elimination is beyond ridiculous. Partial privatization will show the size of the deficit, and make it impossible to keep the tax cuts as is. Actually, I believe the tax cuts will be modified anyway, but this change will help push the changes in the right direction.
I don't see how the economy would be harmed. Some money currently invested in Treasury notes would shift to stocks and private bonds; no harm there. The federal government would have to offer higher interest rates on T-notes; slight harm to the federal budget, but much less harm than would come from extending Bush's tax cut. It's worth it.
As for Short Answer #2, the stock market historically has a 10% annual return, while T-notes have a 3% return. Many experts don't think the market will match its historical rate, but I'd like to be shown an expert who says it will underperform T-notes over a 20-year or longer period. Show me a financial manager who tells a 25-year old to invest her IRA in T-notes, and I'll show you an idiot. That's what Social Security is doing with revenues from 25-year olds.
As for Short Answer #3, it's self-evident that Bush will mess it up. I've looked at his "proposal" here and here. As this report says, the proposal is so vague as to be meaningless. My guess is Bush will eventually just offer tax deductions for larger IRAs. By his standards that's not bad, it's only skewed towards the moderately wealthy that currently fully fund their IRAs. By responsible standards, however, it stinks.
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