Bloomberg’s Flawed Response to Social Security Shortfall: Americans Should Pay More and Get Less

The editors at Bloomberg have decided that condemning younger workers to a more dismal future is the best way to deal with the Social Security program’s giant long-run shortfall.

They want workers to pay higher taxes to prop up the bankrupt system. And, in exchange for those higher taxes, they want to give people less retirement income. Here’s what they wrote in their editorial.

Social Security’s finances need shoring up. But there is nothing wrong with the program that Congress couldn’t fix in a week. Gradually raising the retirement age to 69, changing the formula for cost-of-living increases, and raising the cap on wages subject to the payroll tax would close most of Social Security’s funding gap for the next 75 years. Such changes would rely about 60 percent on tax increases and 40 percent on benefit cuts, and would mainly affect the wealthiest Americans by asking them to pay more and get less in return.

Think of this as the pay-for-a-steak-and-get-a-hamburger plan. Social Security already is a bad deal for workers, forcing them to pay a lot of money in exchange for relatively meager retirement benefits. The folks at Bloomberg want to double down on that approach and make a bad system even worse.

And they want higher payroll taxes on investors, entrepreneurs, small business owners, and other “rich” people. Apparently, some people think it is a good idea to copy European fiscal policy at the exact moment that Europe’s welfare states are collapsing.

Not surprisingly, the editors at Bloomberg reject personal retirement accounts. I am 100 percent confident that they personally benefit from IRAs and 401(k)s, but I guess peasants like us are unworthy.

We don’t think private accounts should be among them. If workers divert some of their payroll taxes to an investment account, that would decrease the flow of money into Social Security and deprive retirees of benefits of equal value. Bad investment choices, or bear markets that lower returns on stocks and bonds, could add to their woes. In other words, private accounts would only make matters worse.

This is remarkable. They actually think that personal retirement accounts are more risky that the empty promises of politicians – even though the system has close to $30 trillion of unfunded promises (in inflation-adjusted dollars!), and even though we see in Europe that very bad things happen when the welfare state collapses.

This video explains why personal retirement accounts are a good idea, including an explanation of how we could transition to a new account and a discussion of how 30 nations already have adopted this pro-growth reform.

So here’s the choice we face. The Bloomberg editors want higher taxes and bigger government – an approach that dooms American to European-style stagnation (and that’s the optimistic scenario). Or we can go with personal retirement accounts – an approach that is working all over the world, while simultaneously boosting growth and creating more retirement security.

Seems like the right choice is rather obvious.

By the way, I can’t resist one last dig at the Bloomberg crowd. Their editorial is titled “Social Security Is No Ponzi Scheme,” yet nowhere in the column do they justify this absurd assertion. At least they should be honest and admit the current system is a pay-as-you-go racket that relies on taxes paid by young workers to finance benefits for old retirees.

And I also can’t resist linking to this cartoon, which makes the obvious connection between Bernie Madoff’s Ponzi scheme and the one the government imposes on us.