Posted on 05/02/2005 1:42:27 PM PDT by TwoDragons
A New Social Security Idea
by Tom Elliott
With President Bush's plan for Social Security reform apparently in tatters and congressional leadership in short supply, maybe it is time for plan B.
Why not let Americans drop out of Social Security?
Social Security was created during the Great Depression in hopes of ensuring that retired seniors would never have to experience the indignity of poverty. Why the system was made universal has never been adequately explained, save by those chastising it as a Ponzi scheme, arguing that its functionality depends on absorbing ever more contributors. Today, those who rely solely on Social Security benefits for retirement are ironically likely to be impoverished. Because Social Security never has and will never be guaranteed, the system encourages irresponsible economic habits.
Everyone knows Social Security is a lousy deal. Americans would be better served if this 12 percent payroll tax were deposited directly into savings accounts - the affect of compound interest reliably outperforms income redistribution.
If Congress is so concerned about Americans' retirement security, why do they not similarly deduct income to fund their real estate security and their children's college tuitions? Most Americans would respond that they can handle their own economic planning. But not retirement?
Of course, private accounts would ameliorate these defects, but an opt-out option would do better. If people were given the choice to drop from Social Security - and thereby forswear future benefits - those assets would flow into the economy. Increased investment through real savings and more efficient allocation of capital would allow business to become more productive in a way that restricted private accounts could never facilitate. With more incentive to work, there would be a boon to the labor market.
A lot has changed since 1937. Today, our televisions are every day advertising affordable brokers for various types of investments - most offer retirement funds that anybody can contribute to from anywhere in the country. A majority of Americans now have an IRA or a 401(k) that travels with them throughout their career. The era when Social Security was sensible has passed.
A voluntary system would essentially eliminate the worry over a looming Social Security bankruptcy. In the past, less than one-third of polled 18- to 34-year-old Americans believed Social Security benefits would be paid upon their retirement. Americans who don't believe they will collect their due are not likely to continue contributing, if given the choice. Eventually, this opt-out clause would act as a self-correcting mechanism: As those who have withdrawn achieve greater results on the market, and as the fiscal forecast of Social Security continues along its rollercoaster ride-like path, more dependents would drop as problems worsen - and liabilities would responsively lessen longside greater economic freedom. Americans would also appreciate the increased civil liberty. When the system began, and Social Security numbers first distributed, the government promised that these would never become "national ID numbers" - an antithesis to the American experiment of limited government. But as time passed and "eternal vigilance" waned, that's exactly what they have become.
The particulars of how the benefits of those who've remained in the system would be paid are not hard to imagine. However, the variables involved complicate things: It is impossible to know how exactly how many people would opt out and at what rate. Social Security still has a near $1.5 trillion surplus for future benefits. This trust in conjunction with a 2 percent payroll tax for those who drop out would provide ample revenue streams.
According to the PEW Research Center, 70 percent favored privatization when George Bush first alighted on the idea in 2000. Support currently sits at 46 percent.
Americans seem to be responding to the apparent growing complexity of "privatization." In a recent poll, only 20 percent favor privatization because it will "make Social Security more secure"; 52 percent like it because it will give them greater control of their future. Mr. Bush's harping on the dire future of Social Security is falling on deaf ears; his hymns for greater economic freedom, however, are eagerly engaged. Americans don't care about the solvency of a government program; they care about their own, and their family's, solvency.
Making Social Security optional is a far simpler way to achieve the goals of free-market wealth creation and it lacks the unnecessary complications of government oversight. It is both a short- and long-term fix and should only require a few hundred words to bring into law. Its practical effect would be a lessening dependence upon Congress for retirement dollars. For this reason, it's no mystery why the idea has yet to emerge from any political quarters. This doesn't make the effort any less worthwhile, however; only more principled.
Tom Elliott is an editor for the The New York Sun editorial page.
I'm interested in hearing what people think about this. Does this strike anyone else as being something worth fighting for?
It's definitely something worth fighting for, and I'd drop out in about .0001 second if given the choice.
The problem is how to pay Social InSecurity benefits for those who wish to remain in the system, and especially for those who have built up a large "investment" in the program.
Could you flesh out those ideas a bit?
D
Fat Teddy and other dims are already on record as having opposed letting their constituents who are fed employees opt out of sosh security , let alone the rest of us ordinary
folks
I love the idea!
As with private accounts, the Democrats will squeal because in essence both are in present times a tax cut of massive proportions. Think of all the money congress has pilfered out of Social Security and spent through the general fund and replaced with IOU's. BTW - I prefer either to the robbery taking place today.
"Why not let Americans drop out of Social Security?"
I have always believed we could drop out of SS whenever we wanted.
I've heard of several people who say they already have opted out .. so why is this supposed to be "something new".
Hey I wonder. I'm glad I never had a chance to opt out. The return that I get from what I paid into SS are fabulous. I got all my money back pretty quickly and it's still coming. Don't see how any private plan could have improved on this return. BTW It's not the power of compound interest, it's the power of inflation that got my money back so quickly.
I can't focus on anything about the SS debate until the dangerous idea that Bush recently advanced -- to limit benefits to the wealthiest people -- is destroyed and discarded. This is exactly how socialism creeps forward.
First they say only the "very wealthiest few" will be paying into a system, but not eligible for benefits. There are so few people affected, and those don't really expect to be reliant on these benefits anyway, that there is a chorus of support from the huge majority who will benefit from this changem and it goes forward. Gradually, a combination of inflation and explicit redefinitions which add "just a few more people" to the list of give-but-don't-getters, and politically palatable new laws exempting "the very poorest" from paying in, while still being eligible for benefits (and that definition is, of course, regularly redefined to make sure nobody has to start paying because inflation put their wealth or income over the threshold) results in the system becoming more and more a straight take from the rich and give to the poor scheme.
At any given time, so few people are being added to the list of those getting screwed, that there is never sufficient political opposition to stop the next step of the creep. But it just keeps creeping forward until a huge percentage of the population is in the getting screwed category. Medicare is already in the universal getting screwed mode on the front end -- since there is no limit on the amount of income that is subject to the Medicare tax, higher earners pay a whole lot more, but aren't entitled to any greater benefits. Just wait -- it won't be a whole lot longer before we're hearing that in order to keep Medicare solvent, it will be necessary to remove just "the very wealthiest" from eligibility for benefits.
Democrat leadership will tell you that to allow some to opt out will 'drastically increase the deficit due to the lack of inflow through FICA taxes' ... and you realize of course that FICA taxes are dumped into a 'general fund' from which the democrats have proven they will fund every new program they can get passed into law. The only real solution is to return FICA taxes to a separate accounting and reduce spending! But of course, politicians of both parties will not address that reality since they spend YOUR tax dollars to empower their re-election.
If given the choice, I'd never have "contributed" in the first place.
I've heard of several people who say they already have opted out .. so why is this supposed to be "something new".
Not in the US of A, they didn't, unless they were employed by one of the local governments that opted out back in the 70's during a brief "let 1000 flowers bloom" period.
Nowadays, even the self-employed are required to pay in.
Agreed. Make social security voluntary. It is simple and easy to sell. Democrats arguing against a voluntary social security plan will be exposed as the dependency-creating socialists they are.
So .. the federal employees can opt out - but the average Joe cannot ..??
Dear ex-snook,
"BTW It's not the power of compound interest, it's the power of inflation that got my money back so quickly."
It's also that you spent a large part of your working career making FICA contributions at 2%, 3%, 5% of income.
Thus, you just put in a tinier fraction of your income for the benefits you receive.
On the other hand, I get to pay 12.4% (and folks who think they're paying 6.2% don't know how employers think about this stuff), and have for years, and will for another 22 years before I'm eligible for full benefits (and I won't be eligible for those until I'm 67).
Even invested in high quality corporate bonds, 12.4% of income over the course of a 45-year career will yield a heck of a lot more than Social Security.
And, when you die, the principle will pass to your heirs, not your Uncle Sam.
sitetest
Yes, pyramid schemes can work great if you get in early enough. We're well past that point now.
As far as I know federal employees were never "opted in" in the first place.
Dear John Valentine,
Originally, federal employees weren't in Social Security. However, that was changed a while back, and new federal employees were required to join. I think it was in the 1980s.
sitetest
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