Posted on 02/19/2003 6:15:53 AM PST by SJackson
A new study from the Federal Reserve says that the wealth gap between rich and poor grew wider as the stock market boomed in the late 1990s.
The most obvious reason is that more than half of all American families now own stocks either directly or indirectly -- but almost half don't. That means that when the stock market rises, the gap between the stock-owning half and the non-investing half rises.
How to close the wealth gap? Bring more Americans into the investor class and let them pass their hard-earned money onto their children.
President Bush's plan to let younger workers invest their Social Security taxes in stocks, bonds, or other private assets would do that. Social Security modernization would not just help all working Americans become investors, it would help end the Social Security death tax.
Pollsters are often mystified by the unpopularity of the estate tax -- lately renamed the "death tax." How, they ask, can so many people object to a tax that falls on only a few rich people? They have a point.
What everyone seems to have missed, though, is that there is a death tax that affects every working American. It's called Social Security.
Every year, every American worker pays 12.4 percent of his income to the Social Security system. Workers may not realize this because the money is taken out of their paychecks in advance. (That's what FICA means on your paycheck.) And half the tax is concealed by pretending that the employer pays it. But economists agree that a tax on wages ultimately comes out of the worker's pocket.
When a worker retires after paying 12.4 percent of wages for years, he gets a monthly Social Security check. The return isn't very good, but at least there's a check (so far). But look what happens when the worker dies: After paying in for all those years, the worker owns nothing. He can't leave anything to his children.
In short, Social Security imposes a 100 percent death tax on every working American. The money he "saved" all those years disappears.
And there's considerable money involved. Take a thirty-something couple earning $54,000 a year. Social Security promises to pay them about $27,000 a year (in today's dollars) when they retire -- if Social Security still has any money. But when they die, that income stops, and there's no estate to leave to their children. (Of course they may have saved other assets, but the Social Security assets would not survive them.)
On the other hand, if they had been putting those Social Security taxes into a retirement fund divided between stocks and bonds, they could expect to have nearly $1 million in their personal retirement account at retirement. That fund would pay them an annual income more than double what Social Security promises, and they would still have $1 million to leave to their children -- or their church or favorite charity -- at their deaths.
If that couple invested solely in stocks, though exposed to greater short-term risk, they could expect to have even more money -- $1.6 million. That's what the Social Security death tax costs a working couple. If they were allowed to put 12.4 percent of their income into real investments, they could accumulate as much as $1 million or more -- and the Social Security death tax takes it all.
Reform that would allow younger workers to put their Social Security taxes into personal retirement accounts would end the Social Security death tax -- the tax that hits every working American -- and dramatically narrow the wealth gap.
David Boaz is executive vice president of the Cato Institute and editor of "Toward Liberty: The Idea That Is Changing the World."
This article first appeared FoxNews. com.
Using your 2% example (which is probably a bit high), a $50,000 worker would contribute $1,000 to a privatized account, $2,200 to FICA, rather than $3,200 to FICA. There would be a corresponding reduction in his “guaranteed” benefits, to be offset by the privatized account. His employers contribution might or might not be treated in the same manner. Of course the benefit cut is coming, privitazation or not.
You said:
"12.4% of 50,000 is 6,200
2% of 6,200 is $124.00"
Here is what really happens under President Bush's proposal:
2% of $50,000 is $1,000 -- which goes into the worker's personal investment account and is owned by the worker, like a 401K plan.
The remaining $5,200 goes to the Social Security Administration to pay current benefits.
$1,000 per year in a tax-FRee savings environment at compound interest rates over a person's working lifetime will grow into a very handsome retirement fundk, owned by the individual.
Click here to calculate the financial rewards of SS privatization.
I think you will be impressed with the difference in retirement income and wealth creation between the current Ponzi Scheme Social Security and a partial (I like full) Social Security privatization.
Over time, the theory is your share (of your money) will increase while the govmt's share decreases until only the life-long welfare/unemployed are left to be supported by the rest of the working folks.
Of course, I expect the Demoncrats to say this idea cuts SS 17% (one sixth) and will be the cause of all the benefit reductions that will force old folks to eat dog food. (Side note - Dog food is not cheap - about $1.80 a pound for wet).
Most of the plans I've seen are clear on that. And you're right that 2% of 6.4% (.0013%) would be useless.
The Cato Institute has a good site covering a number of the privatization plans you might want to check out. As an example, their Calculator which lets you compare different plans, allows you to choose a contribution rate of 2% to 10% of your salary, not the contribution rate . From their calculator instructions
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How would the various policy options affect YOUR retirement income?
The various Social Security reform proposals being discussed differ in the amount of your salary you are allowed to invest privately. Some proposals would allow you to invest all of your payroll taxes (generally not including the portion used for disability or survivors' benefits), whie others would allow you to invest as little as two percentage points of your payroll tax. The options below will allow you to see how different reform proposals would affect your retirement income.
2% - 3%- 4%- 5% - 6.2%- 10%
(Note: The total Social Security payroll tax is 12.4 percent of your income. Half is paid by you, half by your employer. Of this, approximately 2.4 percentage points are used to fund disability and survivors benefits. The remaining 10 percent funds retirement benefits. Therefore, selecting 10 percent would approximate full privatization.
Wrong, SSI is a TAX. The US Government is under NO obligation to pay you a penny irregardless of how much you paid in.
Atleast that is what the courts have ruled.
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