The 'cost of transition' is the latest buzz phrase bandied about by Democrats. Social Security was once referred to as 'the third rail' of politics. For non-New Yorkers this typical Eastcoast shorthand phrase needs explanation. New York Subways are electrically powered in three rails including a ground rail track. When an unfortunate victim, either accidently or deliberately, falls from a loading ramp and touches the third rail he is grounded and immediately fried. Such has happened to many reformers over the past half century. The opponents of change now have come to the hard reality that Americans want a discussion about a law passed before most of us were born.
Social Security withholding takes 12.4% of all wage & salary earnings. There is no personal exemption, standard or itemized deduction. It is withheld on the first dollar of income. Thus on $20,000 of income it is $2480 the worker never sees. Contrary to popular belief the money is not held in a 'Trust Account', as the myth the New Deal lawmakers have perpetrated since 1936, the money is paid out instantaneously to others. But what does this transaction between the worker and the government do to government? It leaves the government with an unpaid debt.
Herein is the structural flaw. Each $1 of Social Security Tax withheld from a workers paycheck is $1 added to the National Debt. In fact, it can be argued Social Security is the single largest component of the National Debt. Most people think of the National Debt like home mortgage, you work hard, save money and eventually reduce the amount of money you owe. The problem is the debt grows 12.4% for each 1 minute of labor performed, multiplied by 130 million workers. In other words, the more we work, the harder we work, the more people employed, the greater the National Debt becomes. Here's the hard truth in a conclusion: we cannot 'payoff' the National Debt by labor, i.e. working. The growth of debt is tied to labor by the withholding tax.
Milton Friedman in his 1980 treaties 'Free to Choose' gave us the simple solution to 'transition costs' in privitizing Social Security, and reducing the astronomical growth of government debt. Repeal the withholding tax (or at least allow workers to redirect a portion of their withholding into private managed accounts) and secondly float a bond issue to payoff existing beneficiaries. Repealing the withholding tax would have the immediate affect of 'capping' the existing debt, rather than its untrammelled growth tied to how productive we are. The existing debt, or 'transition costs' would immediately become finite, and then could be paid off as government has always financed its debts. Herein is the rub, the proponents of the status quo are for expanding debt, as more & more workers join the work force each year, and as all workers work harder. Their view is one of infinite exploding debt. By 'capping' the debt, to use more Washington & Eastcoast shorthand, the largest cause of out of control debt suddenly becomes a fixed number. The differance is between fixed transition costs and limitless debt than can never be paid off by working.