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Word Count: 658
As America moves into the 21st century one public policy issue is becoming increasingly important the need to reform Social Security Our current Social Security system is acting as a drag on economic growth in two important ways First the payroll tax distorts the supply of labor and the type of compensation sought by workers These losses are inevitable because of the low return implied by the pay-as-you-go character of the unfunded Social Security system Second the system reduces national savings and investment Privatizing Social Security transforming it from an unfunded pay-as-you-go system to a system of mandatory private savings accounts would solve both of those problems and increase economic growth Under the current Social Security system each generation now and in the future loses the difference between the return to real capital that would be obtained in a funded system and the much lower return in the existing unfunded program Shifting to a privatized system of individual mandatory accounts that can be invested in a mix of stocks and bonds would permit individuals to obtain the full pretax rate of return on capital This would mean a larger capital stock and a higher national income Conservative assumptions imply that Social Security privatization would lift the well being of future generations by an amount equal to 5 percent of gross domestic product GDP each year as long as the system lasts This could be translated into a gain of nearly 10-20 trillion over an extended period of time Such a private savings program would solve Social Securitys long-run financial problems without the necessity for either huge tax increases or benefit cuts At the same time it would yield enormous benefits to the economy Although reforming the Social Security retirement program is an issue of enormous importance elected officials are still unwilling to confront this serious but politically dangerous problem Eventually however the systems deteriorating financial condition will force major reforms Whether those reforms
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