Todd Henderson Writes About a Solution for Social Security

A Capitalist Way to Fix Social Security

Democrats say Social Security is untouchable and have roped Republicans into saying the same. They also constantly lament the gap between returns to capital and labor. Stock buybacks and even dividends have come under fire, with Senate Majority Leader Chuck Schumer saying that buybacks—already subject to a new surtax—should be banned. Democrats’ dogged attachment to government-run investing undermines the goal of helping workers save for retirement. And fixing Social Security could help solve the capital-labor returns problem.

While Social Security has reduced old-age poverty, it is inefficient in helping those who need it most. To make it politically salable, Social Security is designed to pay out in proportion to the amount paid in, meaning wealthier Americans get more from the program than poorer ones. Payments are greater for people who live longer, who tend to be wealthier to begin with. In 2012, data from the Social Security Administration showed that only 1 in 5 people who die before age 70 would get more money than they paid into the system.

The biggest problem is that Social Security creates two economic castes: a rich one that invests outside the system and a poor one dependent on the program. Social Security returns—the latter group’s only “investment”—are meager, at best. One must live a longer-than-expected life to have even a coin-flip chance of getting more money out of the program than one paid in. As of 2012, only about half of those who lived to between 75 and 84 earned a positive return, in the single digits. The return on the S&P 500 has been around 10% a year since the 1950s.

Read more at The Wall Street Journal