RE: Response to Javier Jimenez

[Michael Jones <powderfinger99@yahoo.com>]

<<<<
Finally, Mr. Jimenez raised a point that has not received much
attention in our discussion thus far - the unfunded liability.
The unfunded liability is the difference between 1) the amount of
money needed to pay current workers and beneficiaries over the next
75 years and 2) the value of assets in the Social Security trust
funds plus the projected payroll taxes from current workers. Since
Social Security is primarily a pay-as-you-go system (payroll taxes
contributed by current workers pay for the benefits of current
beneficiaries) the unfunded liability is quite large.  The Social
Security actuaries estimate that the unfunded liability is about
$9 trillion. What is often overlooked by proponents of individual
accounts is the fact that this cost must be paid whether we maintain
the structure of the Social Security system or switch to a system
of individual accounts.
>>>>

This is absolutely true that this cost exists under any system.

The SSTF does not help to finance the system, because it does
not contain real assets. The SSTF is just a bucket of obligations 
on the Treasury. When SS starts run deficits in 2014, it will
redeem bonds which must be paid from the Treasury out of 
general revenues.

Individual accounts offer the ability to finance some of the unfunded
liability unfront. Since these account contain real assets,
the compounding of interest will reduce the long term unfunded
liability on the taxpayer.

Currently all the liability is on the shoulders of future tax
payers, either through the payroll tax, or general revenues
when the SSTF redeems its bonds.

The unfunded liability is real. The question is do you pay it
purely by payroll/income taxes? Do you want all the liability
to be born by future tax payers?

Using a private market solution would relieve tax payers of
much of this liability because private market assets would
generate income and return through capital appreciation.

I ask any of the panelists, how would you pay for this
unfunded liability:

A) Borne solely by taxpayer (payroll/income taxes).
B) Use private capital markets to provide income and capital 
appreciation to supplement taxes.
C) Borrow more money for a future generation to pay.
D) Cut benefits deeply, except, perhaps to most needy 
(welfare program).

Those are your options. Which ones would you chose? If we
do nothing all the burden will be carried using (A) + (C).
How much in taxes are you willing to pay.

Michael