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News of the Day ... in Perspective


Social Security “transition costs” a myth, economists say

Democrats opposed to allowing workers to use some of the money now extracted as the Social Security payroll tax to fund their own privately owned retirement accounts cite the “transition cost.”

“The plan will cost about $2 trillion in ‘transition costs’ just to shift from the current system,” claimed left-wing columnist Molly Ivins. “That’s $2 trillion we don’t have, can’t afford and will have to borrow with horrid economic consequences.”

“Re-labeling debt is not a transition cost,” said Arizona State University professor Edward Prescott, 2004 winner of the Bank of Sweden Nobel Prize in Economics.

The transition costs are an accounting fiction, argue a growing number of economists—rather like the Trust Fund itself.

“We’ve deluded ourselves into thinking that all of those Trust Fund bonds are assets,” said Lawrence Hunter, senior research fellow with the Institute for Policy Innovation. “They’re not assets at all; they’re liabilities.”

According to Hunter, the so-called transition costs are the money Congress has to find to pay current Social Security benefits, the other programs it has been funding with “surplus” FICA tax revenues, and the amount already borrowed from the Social Security Trust Fund.

In other words, Congress has substituted one form of debt for another (CNSNews.com, Feb 21, 2005).

Additional information:

Cato Project on Social Security Choice

How the Social Security Act was used to circumvent the U.S. Constitution

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