The best way to minimize inequality . . . Privatize Social Security Immediately

Private Social Security benefits everyone at all times – even when markets melt down.

The best way to minimize inequality . . .

Privatize Social Security Immediately

By: George Noga – September 12, 2021

With one stroke, government could virtually eliminate wealth inequality and most income inequality. Economists calculate the current Social Security program yields about 1% per year and when the beneficiary dies his/her heirs get absolutely nothing. In recent decades, private accounts invested in balanced index funds have returned 7% net of inflation; moreover, when the beneficiary dies the heirs inherit a fortune.

To illustrate, $100,000 compounded at 1% for 35 years results in

$140,000; compounded at 7%, it yields over one million dollars.

George W. Bush proposed privatization but progressives demagogued it mercilessly. Barack Obama said, “If Bush had his way, millions of Americans would have had their Social Security tied to the stock market; their nest eggs would have disappeared before their eyes.” Obama demonstrated his economic ignorance. Forbes magazine published a study by the American Enterprise Institute (AEI) written by a former commissioner of the Social Security Administration; the study proved that privatization is beneficial even if initiated right before the stock market plummets by 54% as in 2007-2009.

Under the Bush plan, only workers under age 55 were eligible for private accounts and no retiree could possibly have lost money. The absolute worst case in the AEI study was for a worker who started a private account in 1990 at age 53. That worker would have received benefits seven-tenths of one percent less that Social Security. However, the worker would still have come out way ahead because he owned the account. Even when markets melt down 54% at the worst possible time, private accounts are better.

American Birthright Accounts

The best plan is to replace Social Security with America Birthright Accounts or ABAs. We at MLLG invented the ABA concept and published it in in our posts of 5/20/18 and 6/17/18. These are easily available on our website: Following is a summary of American Birthright Accounts as we first proposed them three years ago.

Government creates a tax-free ABA at birth for every child born in America and funds it for $5,000. Each year until retirement, government adds $500. The account is professionally invested in a diversified portfolio of global index funds. Since 1930 markets have increased 7% yearly net of inflation and despite meltdowns. When the ABA beneficiary is age 65, the account exceeds $1 million and generates $6,000+ per month tax-free and in today’s dollars. A retired couple, both with ABAs, receives $150,000 per year tax-free and would have $2+ million to bequeath to heirs.

American Birthright Accounts make every American a millionaire

ABAs are affordable. There were 3.6 million births in the USA in 2020 – about 3.5 million net of early mortality. This equates to an annual cost of $17.5 billion for the initial $5,000 and $1.75 billion for the $500 per year. The average cost for the first 10 years is $25 billion per year; in year 11 the cost is $35 billion and increases by $1.75 billion every year thereafter. This is less than one-half of one percent of the budget.

Private Social Security and ABAs Minimize Inequality

Creating ABA accounts, or even privatizing Social Security, would go far in eliminating inequality in America. It would make all Americans stakeholders in our market economy. Private accounts succeed due to the power of markets whereas Social Security fails because of the evils of government. Progressives oppose making everyone rich because it would eliminate their dependence on government.

ABAs would cost $250 billion over the first 10 years and easily would fit into the infrastructure bills now proposed by progressives. It would cost a mere 5.5% of the $4.5 trillion and it would give an entirely new meaning to “Born in the USA“.

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Our next post is about all the new taxes in your future – thanks to Biden.
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