Ron Paul's Texas Straight Talk - A weekly Column

October 2, 2000

"Privatization" of Social Security Poses Risks
Federal Government Should Not Play the Stock Market with Your Retirement Funds

I recently voted to support Social Security "Lockbox" legislation designed to safeguard that program's trust fund. The legislation was needed to protect both surplus and non-surplus Social Security funds from being spent on unrelated programs by revenue-hungry politicians.
Social Security, when instituted in the 1930's, represented a promise by the federal government to working Americans. In exchange for their participation in a retirement savings program (via payroll taxes), Americans would be guaranteed monthly payments when they retired. 65 years later, when the majority of America's families own stocks or mutual funds, it is easy for some to forget that many retired Americans continue to rely on a monthly Social Security check for all or most of their income. These Americans funded the system throughout their working lives, and they deserve to know that their retirement funds are secure- after all, it's their money. I believe Congress must work to insure that the federal government meets its promise to our seniors.
Concerns over the future solvency of Social Security have prompted proposals for "privatizing" the system. Many proposals include plans to allow the federal government to put tax dollars into certain approved stock market investments.
I certainly support policies that encourage individuals to invest for their retirement. I believe Congress should lower taxes, allowing workers to keep more of their paychecks to invest. I also support legislation increasing the amounts individuals may put into tax-deductible or tax-deferred IRA, 401(k), and similar pension plans. Furthermore, I have cosponsored legislation that would end the terrible income tax on Social Security benefits.
However, I believe government-managed investment of Social Security funds poses undue risks for our nation's seniors. Although the stock market has done well in recent years, market investments never are completely safe (especially with the Federal Reserve's risky inflationary policies). Our nation's seniors could lose their benefits if the U.S. stock market (or markets worldwide) experience a severe downturn. Remember that Social Security payments were promised to our seniors, and they paid for them during their working lives. Congress cannot risk breaking the Social Security promise, because it cannot risk the well being of millions of our nation's seniors.
Furthermore, government involvement in the private stock market would have dangerous consequences. Who would decide what stocks, bonds, mutual funds, or other investment vehicles were approved? Which politicians would you trust to create an investment portfolio with your taxes? The federal government has proven itself incapable of good money management, and permitting politicians and bureaucrats to make investment decisions would result in unscrupulous lobbying for venture capital. Large campaign contributors and private interests of every conceivable type would seek to have their favored investments approved by the government. In a free market, an underperforming or troubled company suffers a decrease in its stock price, forcing it either to improve or lose value. Wary investors hesitate to buy its stock after the price falls. If the company successfully lobbied Congress, however, it would enjoy a large investment of your tax dollars. This investment would cause an artificial increase in its stock price, deceiving private investors and unfairly harming the company's honest competition. Government-managed investment of tax dollars in the private market is a recipe for corruption and fiscal irresponsibility.
Such "privatization" of Social Security would not really be private at all. Private companies would become a "partner" of sorts with the government. Individuals still would not truly own their invested Social Security funds. Payroll taxes likely would be raised to make up for dollars taken out of the Social Security trust fund. Political favoritism, rather than market efficiency, would determine what investments were made. Worst of all, our nation's seniors would be threatened with the loss of the benefits they already paid for.