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.
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.