Two Principles shape my position:
- "Ownership is Fostered by Savings Not by Taxes"
- "Preserve The Social Security Safety Net... It Works"
False Security
Even if the account does better (and that is debatable) than the Guaranteed Segment which it displaces,
this is a False Ownership... It is not Savings... It is Tax money. The Citizen is duped into believing that he is providing for his future and reduces needed retirement savings. This Is a BAD Result.
Social Security is meant to be a safety net; it was never intended to be a complete retirement program. Employer pension programs and self directed savings programs are the other components of a retirement program. In these programs there is True Ownership. These programs come in a wide variety of options. Some are tax free going in and some are tax free coming out. The Government encourages both kinds of savings with these tax break options... That is Good.
Phony Crisis
Back in the early 80's we had one of these alarms... the funds won't be there in 2001... A high level Commission Studied the problem and came up with a workable solution. They found that you can't promise higher wage indexed benefits if you don't have a payroll tax for anything over $45,000. The solution was: to gradually increase the base on taxes to $90,000 (that's where it is now) and to gradually increase the retirement age for "Full Benefits" from Age 65 to 67 (where it now). As a result of those actions Social Security is running a Surplus, and this surplus is serving to reduce the need for Borrowing in the federal budget.
This solution used again will work out into the future and there will be no need to borrow money to fund the "Private Accounts".
Fairness
Today all who make less than $90,000 pay a 6.2% tax on their wages and the employer also pays 6.2%. Believe me there are people who make more than $90,000 a year. These persons are not paying as high a percentage of income as those sweating to make ends meet at $50,000. A person making $180,000 a year pays 3.1% of income. It is Not Fair in my opinion to provide the safety net for 3.1% of wages to wealthy, when everyone earning under $90,000 is paying 6.2% --- Twice that percentage.
Solution
Reconstitute the Commission to review the Funding .... Eliminate the Cap... Adjust retirement age if necessary...
Make Social Security Mandatory for All wage earners. For example teachers in Texas are exempt from participation.
Enhancements to Encourage Retirement Savings
Make the 401K, 403b, Teacher Retirement, and other Tax deferred plans mandatory at age 30. Promote Generous matching contributions by employers. Continue to enforce penalties for early withdrawal.
I found that when we retired we paid more in taxes than when we were working. I was surprised, because I had always heard that taxes would go down due to a lower living expenses. We found, however, that our "Living Expenses" rose dramatically. We had more time to spend having fun, and we spent more money having fun than we ever could have while working. That lasted for the first five years of retirement...
It sure would be a great incentive for Retirement Savings if the withdrawals were taxed at a lower rate than Ordinary Income... We do it for Capital Gains! We do it For Social Security Income! Why not for Retirement Income from bona fide plans?
Summary
Strengthen the Social Security Net... It works!
Make Retirement Savings Accounts mandatory for all wage earners age 30 and above. Contributions by both Employer and Employee are Tax free going in. This is true Ownership. Make these programs "No Brainer Attractive" so all will take advantage of these plans.
Greenspan should love it.
2 comments:
One good tag deserves another.
Thanks for vist to my board and your comments. You have some intersting ideas there regarding Social Security, I do admit.
Good luck to you.
Abstentus
One of the earliest proponents of the need for private retirement accounts supported by the fedreal government was FDR himself. Here is an extract from his 1935 address to Congress outline his vision for the program.
"In the important field of security for our old people, it seems necessary to adopt three principles: First, noncontributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps 30 years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.
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