Posted on 11/11/2004 10:40:46 AM PST by sadness in phintown
Good post Phins...
Read the whole article at lfospot.
Amen.
Excellent idea, but one that scares the bureaucrats on both sides out of their socks. They can't afford to stop sucking in the money and, ironically, the votes. They'll keep promising, "The system is fine--it just needs a little tweak," until one day it's far too late.
Why not stop SS in it's tracks today? Make retirement benefits a front-end job by investing $2500.00 in an account for every new-born thru seven year-old tomorrow. Make it untouchable for 62 years, or until death, whichever comes first. Individuals would be free to invest more throughout their lives. It would belong to the individual and be part of his estate to pass on to whomever. No government interference PERIOD.
This would kill SS in 55 years.
Just think about it - by keeping all the younger workers in the system, the SS Admin is incurring a higher liability in later years. Letting the younger workers invest some of their own and reducing future liability in SSA lowers the need for more funds later. There are short term deficit increases which will be more than offset by the long term liability reductions created by private accounts.
Here is the core:
The reason this will destroy the modern Democratic party is due to the concept of universal ownership of a growing retirement account by all working Americans. Consider this: the scuttlebutt is that President Bush will propose allowing working Americans to invest 2% of their wages that is now paid into the present antiquated Social Security system, to instead be put into their own private retirement account. Working Americans would still pay a 15% Social Security Tax, but 2% would be yours to invest in your own account. For a 26 year old making $30,000 a year, this 2% would amount to $600. I can hear you now - "heck, that's not much".
But remember, the money is likely going to be invested and earn a return. Assuming a modest return of only 5%, AND that the 2% didn't increase over time (as it should), AND that the 26 year old didn't earn a higher salary as he got older (as he will), then he will have a nest egg of $10,000 in about 12 years. He'll have $20,000 in 20 years. and at 65 years old, he'll have his own retirement fund worth $70,000.
And that's with only 2% being used for his own account. Remember, the government today takes 15%. If, as I hope, the President's plan allows this 2% to be gradually increased over time, every American who works a lifetime, will have a secure retirement fund far in excess of what the Democratic Social Security program ever provided. One more group of numbers for you. If our hypothetical 26 year old was allowed to invest 5% of her wages, AND her average salary was $40,000 over her life, her retirement nest egg would be $240,000. Remember, this assumes a rate of return on investments of 5%. The stock market has traditionally provided a return of just about 10%.
Without trying to run the numbers in any greater detail, the bottom line is obvious and striking - working Americans who are allowed to own a portion of their own retirement taxes will be radically different from the ones who live now.
And they will act differently, think differently, and vote differently. This is what will bring down the Democrats.
Considering the "return" on your SS "contribution" {I mean Ponzi investment} is less than 1% currently, and will be in the negative returns by the time most baby boomers retire, there is no downside to reforming/abolishing this joke. And no, the system would not get "tons of money from current workers opting out" since those same workers are paying today's retirees. That's why most current reform proposals only suggest letting you opt out of part of your SS tax. Your current SS tax is used to pay those retired now - and let's not even mention SSI.
Absolutely true. And the pressure to raise the 2% limit would rise inexorably over the years. If Pres. Bush can somehow get this through, he will be a hero to future generations.
A bit of free advice to the administration: emphasize and repeat ad nauseum that people would not have to invest in stocks. They could in invest in bonds or even savings accounts and still come out in the end with way, way, more retirement money.
"Social Security reform may not come so quickly. The source said it will be "impossible" to accomplish both tax code and Social Security reform in the next 18 months while another senior congressional staff member told FOX News that "it will be tough to do" both Social Security and tax code reforms before intense politicking geared toward the 2008 presidential elections begins"
http://www.foxnews.com/story/0,2933,137980,00.html
I am very cynical about Bush but he will get a big hurah from me if he puts it front and center. Nothing else is acceptable.
By the way, I hope the list of proposed choices for these accounts is broad. If choices are limited to a short list of government approved stock and bond indexes, getting your company into the S&P 500 will become a corrupt Washington lobbyist's game that will greatly damage our capital markets.
I looked at my statement a couple years ago, and it basically promised a -1% return.
Bottom line, it's an unfunded liability to the tune of trillions of dollars. CFOs are fired for underfunding ("robbing") pension funds. It would be criminal to do nothing!
Studies show it should, as long as those who take this option receive NO benefits from SS. All I can say is, where do I sign up ? I figure if I can save my 7.65% for the next 18 years at a minimum of 5% return (and probably more), then I'd have investment returns greater than what SS would pay me after having paid into it for 40 years.
The study also says the leftover tax could be reduced to 4% until the current SS retirees are gone, after which the tax could be abolished (yeah, right!).
True - but compared to what? If the privatization were done without offsetting cuts, the only change would be that the accounting would be more honest. That's all. We are already going into the hole, but the magic "SSTF" is masking it. Maybe it has to be done in stages, with honest accounting as the first big step, and reconciliation of the budget for a later battle.
Give 'em an option
Full benefit - or - a Fed tax credit for ea. $ not taken in a given month/year.
Win Win: the recipient decides, the Fed saves about 75% for $'s applied to tax credit.
I ran these same numbers years ago. It's staggering just how unproductive our Social Security money is!
Social Security takes 12.4% of your pay: 6.2% from you and 6.2% that you never see, from your employer.
Let's start with a fry cook making minimum wage, $5.25/hr, 40 hours/week, 52 weeks per year. His annual salary is $10,920, and social security payments total $1354. If he works at that job for 45 years, he'll accumulate ~$61,000 (0% S.S. interest). Assuming he gets all of it--NOT LIKELY--he can expect a retirement annuity of $357/month...less than 40% of his final year's monthly wage (5% annuity, 25 years).
If this guy is allowed to take all of his social security payment and invest it, he could accumulate $222,000 at 5%, $467,000 at 7.5% and $1,022,000 at 10%. Think of it, he could be a minimum wage millionaire at retirement...if he could only invest his own money at the average long-term stock market return rate!
The 2% is a good starting point. But you've got to acknowledge people's capacity to contribute, and the number of years to retirement. I'd start out and give the poorest workers a bigger share of their contribution to invest...and I'd do the same for those closer to retirement. Over a generation, those contribution charts would shift until everyone is enjoying the same maximum contribution.
Another alternative would be graduating the privatization scale according to the total contribution. Say, of the first $10,000 in wages, give people their full 12.4%. Of the next $10,000 in wages, give people 9% and let the gov't keep 3.4%...of the next $10,000 give them back 6%...etc., etc. This would put the biggest privatization in the hands of the most needy. Same as above, though. Gradually shift the charts until all S.S. payments are privatized.
There are plenty of ways to do it. The bottom line, though, is to phase it in over a generation, and give the most immediate privatization bang to the most needy...so that people can be weaned from the system as quickly as possible.
This one change will make all the difference for the American people. It's FAR more important than suffling the deck chairs with tax reform. Go for this first, have a gigantic nationwide debate, and ramrod it thru. As the article says, when Americans see their own private monthly statements start to add up, "they will act differently, think differently, and vote differently. This is what will bring down the Democrats."
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