Limited Choices Available for Social Security

Obama campaigned on entitlement reform, and he continued to talk about it between the election and the inauguration. The first thing he is likely to “take on” is America’s favorite ponzi scheme, Social Security.

If nothing is done, outflows will surpass inflows in 2017. By 2041, the Social Security Trust Fund will have run out, and Social Security will be completely dead.

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The reality is that other than doing nothing, there are only three options with Social Security:

  1. Private accounts
  2. Benefits reduction
  3. Tax increases

That’s it. It’s one of these, or some combination of the three.

So, let’s look at each…

Private Accounts: Although this is an impossible sell given what is going on with the stock market, placing the money in a vehicle that performs better between collection and distribution is the best long term solution. The stock market is the only such vehicle in existence, and having the accounts be private is the only way to accomplish this, without effectively nationalizing a huge part of the economy.

This, unfortunately, is a political non-starter and simply won’t happen, unless Obama is both much wiser and much braver than I believe that he is.

Benefits reduction: A reduction in benefits, likely combined with some sort of privatization of accounts, would be a solid choice. Unfortunately, like privatization, it is not a viable political option.

Part of the problem is that too many Baby Boomers will be hitting the retirement roles at once. The same numbers that cause Social Security to be insolvent will provide a unified voting block that prevents any reduction in benefits.

Tax increases: We have a winner, Ladies and Gentlemen!

I predict that Obama will give considerable lip service to reforming Social Security. Many plans will be proposed and considered. In the end, he will do nothing substantive to reform Social Security.

The problem will continue to fester until it reaches the critical stage, at which time the Boomers will demand tax increases on the rest of us.

Won’t that be fun!

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